samchain/econo-pairs-v1 huggingface dataset:
How can the persistent current account surplus, textbook economic theory and the SNB’s own assessment be reconciled? Is the surplus in Switzerland perhaps even the result of a monetary policy designed to deliberately push down the exchange rate in order to boost exports? 1 International debate about certain countries’ current account surpluses and unfair exchange rate policy has intensified in recent years. In this context, Switzerland has been on the US Treasury’s ‘monitoring list’ since 2016, although it is not designated a ‘currency manipulator’ in the associated report as it does not meet all the relevant criteria. However, Switzerland is being specially monitored. We are maintaining a constructive dialogue on this matter with the responsible government agencies in the US. Foreign authorities and international organisations recognise Switzerland’s special position, and appreciate the rationale for the SNB’s monetary policy measures. According to the latest External Sector Report of the International Monetary Fund (IMF) of July 2017, Switzerland’s current account is in line with macroeconomic conditions, and its monetary and fiscal policy is considered appropriate. Yet, international debate about current account surpluses and deficits has at times been heated and not always objective. Some observers have repeatedly denounced Switzerland for its persistent surplus. As criticism has focused on the SNB’s monetary policy, I am naturally keen to give you my analysis of the situation. Before we get into the details, let me outline the crux of my argument.

You can see this clearly in chart 8. Both inflation and the output gap show a strong correlation with the development of the exchange rate. Appreciation of the Swiss franc equates to a tightening of monetary conditions. It leads via lower import prices to lower inflation. At the same time, the appreciation of the Swiss franc has a negative impact on utilisation of overall production capacity and thus also on general price developments. 9  The Swiss Federal Statistical Office and the Swiss Academies of Arts and Sciences (2016), Switzerland and the Commodities Trade, Swiss Academies Factsheets, Vol. 11, No. 1. Page 11/13  It is not only the export-oriented companies trading in goods on the global markets that are affected by exchange rate fluctuations. Geographically, the Swiss economy lies at the centre of the European Economic Area. Even in the domestic market, Swiss companies are in direct competition with foreign companies and cannot set their prices as high as they would like above those of their competitors in neighbouring border regions. An appreciating franc erodes the competitiveness of these companies, too. In an exceptionally open economy like Switzerland that is highly integrated internationally, exchange rate fluctuations have a major impact on price stability and economic activity. Since 2009, we have repeatedly been confronted with situations in which the appreciation of the Swiss franc has led to an undesirable tightening of monetary conditions so that production capacity has not been fully utilised and inflation has temporarily dipped into negative territory.
Indeed markets are becoming ever more important as individuals bear increasing responsibility for financing their retirements and insuring risks. It is vital markets work well - and are seen to do so. Only real markets can deliver. Real markets are resilient. They don’t collapse when the going gets tough. Real markets are fair. Participants compete on merit rather than collude online. Real markets aren’t ends in themselves but means to much greater ends. Only markets that transparently serve the real economy can retain the trust of society to operate; in other words, only real markets have social licence. The crisis and its aftermath laid bare that many of our markets didn’t live up to these standards. At times, some of the most important Fixed Income, Currencies and Commodities (FICC) markets proved fragile, unfair, ineffective and unaccountable. The twin crises of the solvency and legitimacy of finance undermined trust in market mechanisms and the effectiveness of the financial system. 1  Old and New London by Walter Thornbury ('Guildhall', Old and New London: Volume 1 (1878), pp. 383-396. BIS central bankers’ speeches  1  It is hardly surprising that only a third of people believe markets work in the interests of society.2 The more people see, the less they like. People trust markets less with age. And yet, most people think markets will become ever more important. And they’re right. As I wrote this week to G20 Leaders, the structure of financial system has changed significantly since the crisis.

Being a senior manager in finance now brings the responsibility and accountability that befits what the best in the industry have long recognised: finance is a true profession. The Bank of England’s role in markets has been comprehensively overhauled. We’re replacing constructive ambiguity with open for business when we provide liquidity to markets. We’re working with others as One Bank to develop markets that support financial stability and the real economy. We’ve revamped our governance and we’re holding ourselves to the highest standards of accountability, including the Senior Managers Regime on top of parliamentary and public scrutiny. So a huge amount has already been completed to make markets fairer, more resilient, accountable and effective. These reforms are essential for the UK to remain the leading international financial centre. BIS central bankers’ speeches  3  They are essential not least because the size of the UK-based market-based financial system could increase from six to nearly 15 times UK GDP by 2050. But the journey isn’t finished. Today is a chance to take stock and reflect: not just on our achievements but on what we might have missed, overdone, or simply got wrong. Given the complexity and scale of financial reform, it would be remarkable if every measure were perfectly constructed. Or if they all fit seamlessly into a totally coherent, self-reinforcing whole. Authorities must have the courage to listen, the honesty to admit our mistakes and the confidence to set them right.
But in the aftermath of the global financial crisis – with a long-term downward trend in the equilibrium real interest rate, R-star; with nominal policy interest rates stuck for long periods at their effective lower bound; and with disruptions in the financial sector impeding the traditional transmission of monetary policy – the use of QE and other balance sheet policies by central banks has become mainstream. Pace Poole, QE policies have largely been expressed in quantitative terms (even if that approach has been somewhat watered down over time). For example, at the Bank of England QE measures have been announced in terms of changes in the stock of gilt holdings in the special facility created to manage the asset portfolio. Such an approach inevitably begs the question of whether, and if so in what form, monetary quantities have re-asserted themselves in the conduct, transmission and communication of monetary policy. More generally, the financial crisis and its aftermath have demonstrated that financial markets are subject to periodic disruption. This questions the assumption – embedded in much of traditional finance theory – that equilibrium yields are independent of the quantities of the supplies of different assets. Failure of that assumption opens up scope for monetary quantities to have an important influence over a wide range of asset prices and risk premia, and thereby play an important role in monetary policy transmission.

Financial stability Our interest in stability and efficiency reaches of course beyond the money market itself. We have a broader interest in a robust financial system. The transition from a bank requesting liquidity to a bank with longer-term funding requirements, and perhaps solvency problems, can be blurred. Like other lenders, Norges Bank has to decide on the collateral it is prepared to accept for the loans it provides and be qualified to evaluate the financial strength of borrowers. As lender of last resort, we must also be able to assess whether problems in individual banks could jeopardise the stability of the financial system as a whole. The financial crisis has revealed major weaknesses in the financial system. Work is in progress across the board on proposals for revising the regulatory framework and introducing new regulations. It has become increasingly clear that supervision must encompass the financial system as a whole and not be limited to the individual financial institution or the individual financial market. The term used to refer to this supervision of the financial sector is macroprudential policy, which has to be based on analyses of the financial sector as a whole.
And yet there are few signs of domestically generated inflation, which has remained close to 2%.1 Pay rises and underlying inflationary pressure are low, and the medium-term outlook is for inflation to fall back to the target. Inflation targeting achieved its objective. The greater risk at present is that, over the next few years, unemployment remains unnecessarily high. We must not forget that one million more people are out of work than in the five years before the crisis. It is too soon to say the job of securing recovery is complete. There is a powerful case for more stimulus in the short run. The present extraordinary monetary policies cannot, however, continue indefinitely. Both nominal and real interest rates are at unsustainably low levels. There is an understandable yearning for a return to normality. And in recent weeks bond yields have risen – up around 45 basis points since the start of May. But such market moves should not be confused with a return to normality. A rapid return to higher interest rates would do great damage to the balance sheets of highly indebted households, companies and, especially, financial institutions. The challenge in returning to normality is not so much managing market expectations when that eventually happens, important though that is, but in creating the economic conditions in which it is sensible to return to more normal levels of interest rates.

Before I continue, I’ll give the standard Fed disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Has the Phillips Curve Changed, or Is it a Trick of the Data? Throughout the paper, HMS use a reduced-form Phillips curve regression as a basis for their analysis. For my remarks, I simplify the specification and assume the inflation rate depends on the unemployment gap (and variants thereof), four lags of inflation, and a constant (relative to HMS, I have dropped the import price and inflation expectations terms). 1/4  BIS central bankers' speeches  Overall, the results for the core personal consumption expenditures (PCE) price index inflation using this simplified specification are quite similar to those reported in HMS. The full-sample (1961-2017) estimated coefficients using the core PCE price inflation rate are reported in the first column of the upper part of Table 1. The second column reports results corresponding to the “spline” specification of HMS, where positive values of the unemployment gap are added to the equation to capture asymmetry in the response of inflation to labor market tightness versus slack. The third and fourth columns of Table 1 report the corresponding estimation results for the subsample of 1961-1987, and the final two columns report the results for the subsample 19882017. Like HMS, the latter sample shows far less intrinsic persistence in inflation and a severe flattening of the Phillips curve relative to the full-sample results.
9 Global systemically important banks. 10 Constâncio, V. (2016), “Margins and haircuts as a macroprudential tool”, remarks at the “ESRB international  conference on the macroprudential use of margins and haircuts”, Frankfurt am Main, 6 June 2016; Constâncio, V. (2017), “The future of finance and the outlook for regulation”, remarks at the “Financial Regulatory Outlook Conference”, Rome 9 November 2017. 11 ESRB (2017), “Sovereign bond-backed securities”, ESRB High-Level Task Force on Safe Assets; for the original  proposal referring to ESBies see Brunnermeier, M., L. Garicano, M. Pagano, R. Reis, T. Santos, D. Thesmar, S. Nieuwerburg and D. Vayanos (2011), “European Safe Bonds”, The Euronomics Group. 12 Monti, M. (2010), “A New Strategy for the Single Market”, report to the President of the European Commission,  José Manuel Barroso, May 2010. 13 For a good analysis of these and other proposals see Leandro A. and J. Zettelmeyer (2018), “The search for a  Euro area safe asset”, Peterson Institute for International Economics Working Paper 18–3. 14 van Ark, B., M. O’Mahoney and M. Timmer, (2008), “The Productivity Gap between Europe and the United States:  Trends and Causes”, Journal of Economic Perspectives 22:25–44. 15 Fernald, J. (2015), “Productivity and Potential Output Before, During, and After the Great Recession”, NBER  Macroeconomics Annual 29:1–51. 16 Mokyr, J. (2014), “Secular Stagnation? Not in Your Life”, Geneva Report on the World Economy, pp. 83–89.

At the same time, we also need to remove the remaining obstacles to further integration within our banking union. Such obstacles are often due to regulatory fragmentation and ring-fencing of national markets. For example, a number of national options and discretions, such as diverging large exposure rules, are hindering the free flow of liquidity and capital in the banking union and should be harmonised further. Turning to other parts of the financial system, we can expect that the CMU will provide further impetus to the growth of market-based finance and may present new challenges to financial stability. Additional steps should be taken to strengthen the ability of European regulators and supervisors to address systemic risks stemming from the non-banking part of the financial sector. This could be achieved by expanding the mandate of relevant authorities and, in the medium run, by creating a single supervisor for the capital markets. Adequate macroprudential instruments need to be envisaged as well, including instruments targeted at market-based finance. Macroprudential tools for this area either still need to be provided to authorities or need to be further clarified in respect of their application. For Securities Financing Transactions (SFT) and derivative markets, macroprudential margins and haircuts have been identified as potentially powerful tools for reducing the excessive build-up of leverage and procyclicality in these markets.10 For alternative investment funds, the existing macroprudential leverage limit needs to be operationalised.
In other words, a bank could trade a currency derivative on an electronic platform in Singapore, clear the transaction through a central counter party in London and report it to a repository in the US. And the bank could be using different platforms, clearing houses and trade repositories for different types of derivatives. But if all three activities in the trade cycle could be vertically integrated into the same platform, with the trading linked to post-trade services, it would not only be more efficient for the bank, but also be more convenient for regulators to access transactional data from the same market infrastructure for market surveillance and monitoring financial stability. IV. Concluding remarks  22. I am genuinely excited by the opportunities that I see in Asia’s capital markets. An integrated capital market is not only bigger, but offers more choices for investors, more sources of financing for companies, and generally deeper liquidity and better pricing through competitive spreads. Over time, greater scale and greater integration within and across asset classes can create opportunities in new financial products, such as through securitisation. 23. Singapore is well positioned to offer integrated capital market solutions, given that many of the different parts of the value chain – trading, clearing, settlement, reporting – are already being offered in Singapore across the spectrum of asset classes including equities, bonds, foreign exchange and derivatives.

Although natural catastrophes – and damage caused by them – have risen in Asia in the last ten years, we remain significantly underinsured against perils like flooding. As disaster risk exposures grow in scale, size and complexity, it would exceed the individual capacity of local insurance markets, and governments, to insure the risks of its populations and communities. PPPs between public and private sectors, and across national borders, can be effective in maximising the benefits of insurance. Such examples of horizontal integration between markets are key in managing the region’s rising exposures to natural catastrophe risks. 19. Collation of natural catastrophe risk data and analytics across ASEAN countries is a necessary first step toward more comprehensive catastrophe protection, paving the way for insurance integration in this region. Currently, the fragmented market structure in ASEAN constrains data sharing and the capacity of domestic insurers to pool and underwrite risks. In Singapore, key partners from academia and industry, alongside the MAS, have come together to form a work group to explore the establishment of a Natural Catastrophe Data Analytics Exchange. This Exchange serves as a regional platform to collect data and model  4  BIS central bankers’ speeches  less understood regions at risk in Asia-Pacific, facilitate better pricing of such risks, and eventually pave the way for more comprehensive insurance against these risks. 20. In combination, these comprehensive efforts among jurisdictions and participants are very encouraging.
It will also be necessary to decide when and how to loosen or remove these credit restrictions at low points in the cycle. I am sure that this part will prove to be more popular and easier to sell to public opinion, but it is worth remembering that a buffer can only be released at a low point in the cycle if one has previously been imposed during the boom. In any event, in the light of recent experience, I believe that we can all agree that the consequences of a failure to act by the supervisor is infinitely worse than the alternative, although the appropriateness and timing of measures to restrict credit will always be controversial. Conclusions I would like to finish by reaffirming the Banco de España’s positive assessment of the new real estate credit law. We consider that the strict regulation of its provisions, along with the increase in the information available to customers in the pre-contractual stage, will help to reduce legal uncertainty and the current high level of litigiousness in this market. I would also like to point out that implementation of the law involves, in many cases, promoting a cultural change in customer relations, for which purpose the wholehearted support of the entire organisation is needed, starting with the governing bodies and senior management. All these elements should improve the functioning of the mortgage market to the benefit of customers and institutions.

The interest rate path we published last week showed that the key policy rate will probably be raised gradually. When households and firms perceive signals concerning future interest rate developments as credible, the impact of interest rate increases that lie ahead may occur earlier. Communication enhances the effectiveness of monetary policy Communication about the evolution of the economy is therefore an important part of Norges Bank’s monetary policy. We communicate our view of the economic situation and our monetary policy trade-offs in various ways. The Bank’s most important channel of communication is the monetary policy report. The report contains a thorough review of new information that is relevant to the evolution of the Norwegian economy and the background for the interest rate decision. Last week, the Bank launched a new product – Pengepolitikken kort fortalt [Monetary policy in brief]. [1] We believe there is a need for this. This product is designed for Norwegian readers looking for a more generalised, brief description of the background for the interest rate decision. The fundamental message conveyed is of course the same as in the Bank’s monetary policy report. Norges Bank has published forecasts for the key policy rate three to four years ahead since 2005. If the economy evolves as envisaged by Norges Bank, this is the Bank’s best forecast for future key policy rate levels. The interest rate forecast is thus a summary of the message in the monetary policy report.
As I noted earlier, one of the major developments of Phillips’ original work was the incorporation of inflation expectations into the curve plotting the relationship between pay growth and unemployment. This enabled the Phillips curve framework to explain the experience of the 1970s in which unemployment rose but pay did not fall. 12  11  That can happen if the efficiency of matching changes – perhaps due to technology – or because of compositional changes to the workforce – if different cohorts of worker have different rates of frictional unemployment. Somewhat counterintuitively, the data do not tend to support the idea that matching efficiency is improving over time. See Pizzinelli and Speigner (2017) for a discussion. 12  Phillips (1958) does investigate the role of inflation – noting that the relationship was absent in years when a rapid rise in import prices had initiated a wage-price spiral – but does not incorporate inflation or inflation expectations into the mathematical relationship. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  The inflation adjusted Phillips curve adds inflation expectations as a driver of pay growth alongside excess supply (or demand) for labour relative to the natural rate. In order to preserve the value of real wages workers are assumed to require compensation for expected inflation as well as whatever pay increase or decrease the tightness or looseness of the labour market would warrant.

And there has been extensive work on labour market dynamics and frictions to establish the point at which the level of unemployment accelerates the rate of inflation which, for the same of simplicity, I will refer to here as the natural rate. 9  However for nearly 5 decades the essential framework of a labour market impacted by inflation expectations that clears with lags around a natural rate of unemployment over the business cycle (or trade cycle in Phillips’ original work) has played a fundamental role in modern macroeconomic models, including those used as part of their forecasting machinery by monetary policy makers, like the Bank of England. So for monetary policymakers the apparent disappearance of the link between pay growth and employment is, as I have said, one of the key puzzles of the post recovery economy in the UK and in advanced economies. It has of course attracted a great deal of attention. I am afraid I do not have the answer to the puzzle to give you here tonight. I suspect that for many years to come, economists in academe and elsewhere will be occupied - and arguing - about this period and revisiting (again) the established Phillips curve framework. But policy makers cannot just ‘down tools’ until we have a better understanding. So I do want tonight to look at some of the main candidate explanations and what they might mean for the policy maker.