samchain/econo-pairs-v1 huggingface dataset:
This is the holdings in accounts with the commercial banks. Such money is by definition a claim on these banks. However, banks may be forced to wind down, sometimes even going bankrupt, which happened to Stockholms Banco and as we saw in the most recent international financial crisis. This means that this money, the commercial bank money, does entail a risk even if the risk is slight. If the bank fails, you may not be able to redeem your entire claim on the bank from its bankruptcy estate. However, these days there is a state deposit guarantee that protects households up to a certain limit, EUR 100,000 per person and bank. Those with capital above this limit and legal entities do not enjoy this protection and so commercial bank money entails some credit risk for them. Commercial bank money is a claim on the bank and therefore a part of the financing of the bank. They are therefore transient, that is, the bank's customers can often move the money at short notice, either to another bank or withdraw it in the form of cash. The bank's assets, such as household mortgages, are not in general as transient. It is this that may create financial stability problems in the banking sector if the general public wants to withdraw their money and the bank cannot quickly sell assets to raise the needed liquidity.

And quite a bit of the high-frequency variation in the CPI arises from things that don’t directly affect nominal pay – taxes and import prices, for example – but do affect its real value. When taxes or import prices go down, real incomes rise (and viceversa). This produces a negative near-term correlation between inflation and real income growth; controlling for nominal pay, there is also a clear negative correlation between surveyed inflation expectations and household optimism (Chart 11). Chart 10 Consumer confidence has strengthened in US, Euro area  Source: European Commission, Conference Board  Chart 11 Surveyed household inflation expectations, optimism negatively correlated  Source: ONS, Gfk/EC, Barclays Capital. Note: * after controlling for current wage growth. These results might give one pause about whether the “delayed consumption” channel really is that important, or whether the surveys of inflation expectations are really telling you about what matters. The link between consumption and real interest rates is not an empirically strong one 13. Other measures of inflation expectations – for example from financial markets – are less depressed (Chart 9). A recent study using US data found that, even controlling for nominal income, there was no correlation across individuals between their reported expectations of inflation and spending 14. At the very least, the results are a reminder not to consider current inflation or survey measures of household inflation expectations on their own, but in the context of what’s happening to incomes and interest rates.
The banks are therefore also vulnerable to disruptions in the financial markets, particularly the international financial markets. Low interest rates increase risks Global real interest rates have been low for a long period of time and have been falling since the mid-1990s, see Figure 7. 33 This can also increase the risks in the financial system. The low interest rates namely risk triggering a “search for yield”, that is, investors abandon safe investments in favour of riskier ones that have a higher yield. For investors with a predetermined nominal required rate of return, the search for yield may be particularly attractive. 34 It is also the case that if investors find themselves in an environment with low interest rates and low risk over a long period of time, they may become used to this environment and not notice that conditions have changed. They may underestimate future risks and therefore refrain from compensating themselves sufficiently for the risks entailed in a particular investment. The low interest rates also contribute to increasing both housing prices and household indebtedness, even if the interest rates are not the only factor behind them. Prices in the Swedish housing market have been rising for a long time and the high prices stand out, even in an international comparison. Swedish housing prices and household indebtedness in relation to disposable income have risen by more than 100 per cent since 1995, see Figures 8 and 9. 32 See Nilsson et al. (2,014). 33  See Lundvall (2020).

But set those tools to one side for a moment. Monetary policy could be used to reach a point more like P in Chart 5, with less variation in the output gap and more variation in inflation than we have actually experienced over the past 20 years. Put another way, higher interest rates in the run up to the financial crisis might have reduced the impact of the subsequent bust, at the cost of below-target inflation and below-trend output before the crisis hit.2 In practice new macroprudential tools and better micro-prudential supervision will improve the possibilities available to monetary policymakers. Having additional instruments in effect brings about a favourable shift in the Minsky-Taylor frontier (or surface) which defines the possibilities open to policymakers.3 Nevertheless, consistent with the new remit4 given to the Monetary Policy Committee by the UK Government last month, the experience of recent years suggests that there may be  2  A more detailed appraisal of this argument is contained in “Twenty years of inflation targeting”, a speech by Mervyn King (2012), available at http://www.bankofengland.co.uk/publications/Pages/speeches/2012/606.aspx. 3  A social planner would use both instruments together to pick the welfare maximising point on the frontier / surface, and in the UK the Monetary Policy Committee is expected to work closely with the Financial Policy Committee which has the statutory power to deploy macro-prudential instruments.
Everybody seeks to ride the wave created by general sentiment, hoping to step off before the general sentiment turns. The second explanation is that global markets are in fact less atomistic than we think. Indeed, despite globalisation, increasing market concentration was already a long-term trend before the crisis. Derivatives activity in the US banking system, for example, is dominated by a small group of large institutions. And, of course, the market for credit ratings is famously dominated by three signatures, which act as standard-setters for an enormous volume of transactions. Many regulatory initiatives are underway to remedy these issues, including work on OTC derivatives, ratings agencies and alternative investment vehicles. But addressing these challenges could also be supported by reorienting significant resources in research. In particular, I would welcome an enrichment of thinking in economics and finance, by including new approaches that do not necessarily rely only on the notions of equilibrium, universal rationality and efficiency. Inspiration from other fields, such as the natural sciences, may be particularly pertinent. I am thinking for example of market movements from stability to instability, from tranquillity to turbulence. In physics such phenomena are described as phase transitions. When some factors exceed a critical level, a system behaves qualitatively differently from a situation when the factors stay below this level. Let me now turn to the third building block of regulatory reform, macroprudential supervision. III. Macroprudential oversight  As my earlier remarks have suggested, the financial crisis has been revealing in many respects.

That said, private sector actors do not need to wait for public authorities to do everything before starting to think about consolidation strategies. Lastly, we also need to ensure that institutions are treated equally under international regulations. If we are to reach an agreement, two conditions must be met. The transposition of Basel III must be reasonable and take into account the application of the “output floor” at  Page 4 of 5  the highest level of consolidation. Above all, the transposition must be fair and applied to the letter in all jurisdictions, including in the United States. Let me be clear about one thing, however: the solution to our banking challenges is not deregulation but rather innovation; not a step backwards – towards the financial crisis – but a leap forwards. III. We need to remain fully mobilised with regard to two deadly risks: ALM/CTF and cyber-security  The fight against money laundering and terrorist financing (ALM/CTF) calls for unwavering commitment. The 23 inspections carried out by the ACPR revealed major failings in supervised entities’ compliance with their AML/CTF and asset-freezing obligations. In 2018, the Sanctions Committee imposed nine sanctions, one of which amounted to EUR 50 million. In parallel with the Financial Action Task Force’s assessment of France in 2020, the ACPR will be closely involved in the implementation of a robust and renewed AML/CTF system at the European level.
Note that I use the term reasonable scenarios, which means in practice that in practical forecasting work we disregard certain kinds of scenario. Examples of scenarios that we choose to disregard include a decision to abandon the inflation target, the outbreak of war, major natural disasters or an epidemic that infects a large part of the labour force. We ignore such scenarios partly because they are very unlikely and partly because they would entail a radical change in the preconditions for monetary policy. If such a scenario did nevertheless occur, we would have to decide what would be required of monetary policy at the time. The financial crisis can also be seen as a kind of extreme scenario, even though this was not an event that could be regarded as being highly unlikely. Most analysts believed that there was a clear risk that the problems that arose on the financial markets in 2007 could get worse. The problem was that the crisis not only became unusually severe; it also took a course that few of us could predict. The crisis spread throughout the global economy through various international financial links and fundamental functions in the financial system were seriously disrupted. This had dramatic, negative effects on, for example, the possibilities of companies to get funding and on world trade. This was a case of crisis mechanisms that we had very little experience of and that were therefore not included in our forecast models.

The global financial crisis that originated in the US housing market is perhaps an all too clear example of this. The IT crash that took place just over 10 years ago is a more normal example of how events in the United States affect the global economy via financial prices. Assessing the current situation – the essential starting point for the forecast for Sweden Assessing the current situation entails producing a forecast for the current quarter, and perhaps the next quarter. At such a short forecasting horizon, not so much importance is  2  The GPM has been developed by the IMF. It is available in several versions. For a description of a smaller version of the GPM, see Carabenciov, I., I. Ermolaev, C. Freedman, M. Juillard, O. Kamenik, D Korshunov, D. Laxton, and J. Laxtion (2008), “A small MultiCountry Global Projection Model with Financial-Real Linkages and Oil Prices”, IMF Working Paper No. 08/280, International Monetary Fund. 3  For a more detailed analysis of how the United States affects the global economy and the role that financial links play in this see Chapter 4 of the IMF’s (International Monetary Fund) World Economic Outlook from April 2007. BIS central bankers’ speeches  3  attached to large macro models; the assessment is instead based on many different economic indicators. An assessment of the current situation is a kind of mapping of the disruptions and imbalances that are currently affecting the economy; in other words it describes the situation at the starting point for the forecast.
You really didn’t think that meeting people from BNP Paribas on the very same day that the Governing Council took a major monetary policy decision would arouse suspicions about your independence? Do you really think there’s a risk there? Our independence towards banks is well known. The person in question was passing through Frankfurt that day and I can assure you that we didn’t discuss monetary policy. To be clear: in such meetings we never divulge sensitive information or indications about the future direction of monetary policy. That is against our rules. Publishing your meeting calendars may not be enough. Why not implement a “quiet period” like the Bank of England, during which no meetings are allowed? If we need to tighten our rules because the public has a negative perception of how we conduct ourselves, then we will tighten them. Central banks are public institutions and people’s perception of what we do is important. But we’re not going to stop talking to the market. Communicating with market players is a key part of monetary policy, and is all the more important given that the ECB is implementing new, unconventional monetary policy instruments. The financial markets seem to think that the ECB will boost its very accommodative monetary policy of purchasing assets, or “quantitative easing”, from December… Are they right? The decision has not been taken. The debate is ongoing.

M R Pridiyathorn Devakula: Upon acceptance of the award for Central Banker of the Year - Asia 2006 Statement by Mr M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Banker Magazine Luncheon Seminar, Bangkok, 1 February 2006. *  *  *  Distinguished Guests, Ladies and Gentlemen, Back in June 2001, when I landed at the job of Governor of the Bank of Thailand, I was fairly confident that I would be able to do well in the area of bank supervision, given the considerable exposure I’ve had as a commercial banker. I also had some ideas on how to move forward the resolution of NPL and return banks to profitability. But I was a banker and not an economist by profession. My expertise in business administration made me a bit uneasy on matters concerning monetary policy, as I felt that I did not have enough macroeconomic background to master the monetary policy issues. However, I was really fortunate to have a highly competent Monetary Policy Committee as well as BOT staff to support me in this area. Indeed the depth of knowledge and the quality of analysis provided by BOT staff are materials which I can always rely on. All I have to do during the past 4½ years is to pay close attention to their presentation, data analysis and proposals.
I shall conclude my remarks by commenting on a change in the terms of admission to the Swiss franc repo system. Deployment of monetary policy instruments in the crisis and trends in the SNB balance sheet From October 2008 to March 2009 we carried out a massive reduction in the Libor target range in several steps. The most important instruments for expanding liquidity during this phase were repo transactions and currency swaps. Since the reduction of the repo rate to 5 basis points in December 2008, we have been pursuing a de facto zero interest rate policy. Beginning in October 2008, the heavy foreign demand for Swiss francs was influencing the level of the Libor – and this made it necessary to conduct Swiss franc/euro currency swaps. Swap agreements with other central banks gave more foreign banks access to Swiss francs, thus bringing the Libor down faster. As of March 2009, in order to loosen the monetary reins further when there was no more room for interest rate reductions, we adopted so-called unconventional measures. These took two forms: intervention in the foreign exchange market and purchases of bonds issued by domestic borrowers. In addition we concluded long-term repo transactions with terms of up to 12 months. So far the measures we have taken have achieved the objectives we set ourselves. The three-month Libor has been close to our target range of 25 basis points since the middle of September.

As I mentioned, the price of oil has just about doubled over the past two years. Typically, the markets view oil price jumps as temporary. But this time around, far-dated oil futures prices also have increased sharply, suggesting that the high prices may be here to stay. This is a highly unusual development. Most likely, it reflects the perception that there is little excess supply of oil available in the world and that global demand is likely to remain strong. The perception that the oil price shock is more permanent tends to intensify its negative effect on spending. Estimates suggest that the oil price shock has noticeably restrained real GDP growth—by about three quarters of a percentage point in 2005. This impact is certainly nontrivial. However, it is worth emphasizing that the recent price change and spending impacts are far smaller than those of the oil shocks in the 1970s. The U.S. trade deficit, as we all know very well, has been growing rapidly for years. By the end of last year, it topped five and three-quarters percent of GDP, a new record. Two of the major factors contributing to the sizable imbalance between our imports and our exports are the strength of the U.S. economy relative to our major trading partners and the relative strength of the dollar. In 2004, the increase in the trade deficit—by itself—subtracted almost one percentage point from real GDP growth, representing a significant drag on overall activity.
Knowledge will not be enough. We already have a knowledge economy. In future we will need a creative one. That may call for a very different model of education and training. The Great Fire Let me illustrate some of these points with a very simple historical example. It is a particularly poignant one here at the GSA, which has suffered not one but two devastating losses over the past four and a half years. The example is fire. The domestication of fire is, by many people’s reckoning, one of the greatest-ever human discoveries. If you type “greatest ever discoveries” into a search engine, fire typically comes close to the top. It usually ranks alongside the wheel, gunpowder, the printing press, electricity and the internet in people’s all-time top ten. No-one of course knows quite when or where fire was first discovered or at least domesticated. But historians believe the domestication of fire may have occurred around one million years ago, when hunter-gatherer communities were first being formed. Indeed, it has been conjectured, plausibly, that fire was a key factor in allowing those communities to grow and develop. It is not difficult to see why. Fire would have been a truly transformative technology for these communities. It served as a source of heat as well as light. Equally vital then, if less so now, fire served as protection against marauding peoples and animals. Hunter-gatherer communities typically comprised around 150 people.1 This meant they faced existential threat on an almost daily basis.

Christian Noyer: Challenging times for finance and banking in Europe Keynote address by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Paris Europlace International Financial Forum, Paris, 8 July 2014. *  *  *  Ladies and gentlemen, dear Arnaud, I am pleased to be able to give this keynote address today for our Paris Europlace International Financial Forum, before the round tables begin. These are challenging times for economic policy-makers, central bankers and professionals working in the field of finance and banking in Europe I will address three questions: is the euro crisis over? Does Europe face the prospect of a lost decade? What short-term policy challenges are we facing today? And I will finally say a few words about recent changes in our communication strategy. I. Is the euro crisis over? Less than two years ago, the euro area was fighting for its existence. Euro pessimists were questioning its ability to survive. Not anymore. Analysts may be questioning Europe’s ability to grow. But the challenges that we are facing are different. They are macroeconomic, not existential or systemic. Thanks, mainly, to the Eurosystem’s actions, financial conditions are normalising. Spreads in peripheral countries have been dramatically reduced. Soon, budgets will be reasonably balanced and there will be no more fiscal drag on the economy. Households and corporates have strong balance sheets.
While we are doing what we can to keep the side effects to a minimum, the financial industry must play its part and adapt as far as possible. The recovery has started. However, for it to be sustainable, we must first and foremost address the causes of this global low interest rate environment. But monetary policy cannot manage this on its own – not least because our measures are not intended to become a permanent feature of the system. The economic recovery cannot be sustained by monetary policy alone; it also needs support from politicians. The main objective is to bring about a turnaround in global growth. This involves stepping up fiscal policy measures where there is scope and need. We also require reforms that increase productivity. But even these political measures won’t be effective if the virus of isolationism is rife. Because 4/5  BIS central bankers' speeches  the plague of protectionism only creates losers. 1 Eucken, W. (1990), “Grundsätze der Wirtschaftspolitik”, 6th edition, J.C.B. Mohr (Paul Siebeck), Tübingen, p. 257. 2 See Rostagno, M., Bindseil, U., Kamps, A., Lemke, W., Sugo, T. and Vlassopoulos T., (2016), “Breaking through  the zero line: the ECB’s negative interest rate policy”, Brookings Institution, Washington DC, 6 June. The presentation is available on the website of the Brookings Institution. 3 Borio, C., Gambacorta, L., Hofmann, B., (2015) “The influence of monetary policy on bank profitability”, BIS  Working Paper October. 4 Mersch, Y.

– https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp191112_1~f304b47e14.en.html  3/9  Mechanism (SSM) in 2014, the Banco de España’s supervisory role was integrated into a new institutional framework with the European Central Bank at its core. I will come back to this function later on. Some lessons on central bank independence Let me share with you some reflections about central bank independence nowadays. This will be in the form of five lessons which, in my view, should be kept in mind when thinking about central bank independence, particularly at the current juncture of seemingly tamed inflation but with difficulties in achieving price stability objectives in some advanced economies. 1. Institutional settings matter First, I would state that independence, to be effective, must rest on a robust legal and institutional framework. Independence must be formally recognised in all of its relevant dimensions: namely, at the institutional, functional, personal and financial levels. This is the case in the euro area, where the Maastricht Treaty4 provided the appropriate framework; but unfortunately it is not the case in other regions, thus making the task of central banks much more complicated. 2. The need to deliver Second, the main reason for central bank independence is a utilitarian one: independence is an instrument to enhance effectiveness in order to achieve agreed objectives in the general interest, such as price or financial stability. The social value of central bank independence is thus inextricably linked to the effectiveness of its policies.