samchain/econo-pairs-v1 huggingface dataset:
If the private sector wants to hold more in their bank accounts for a given level of spending – if the extra deposits held not as a “medium of exchange” but as a “store of  Page 21  wealth” – this needn’t have any implications for inflation. One clear example is the experience of the first few years of the 1980s. After years or extremely high inflation, the incoming UK government – which in those days set monetary as well as fiscal policy – was determined to reduce it. To this end it set itself intermediate targets for broad money growth. These were repeatedly overshot – as you can see from Chart 12, broad money growth remained stubbornly high – and eventually abandoned. Yet inflation fell sharply anyway. Chart 12: During the first half of the 1980s broad money growth remained very high but inflation declined anyway  Sources: ONS, Bank of England and Bank calculations. At least with the benefit of hindsight, one can see that these differing trends reflected strong growth in the demand for money, alongside stronger supply. After the financial liberalisation of the early 1980s banks had started to pay interest on deposit accounts, making them more competitive relative to securities like gilts (the orange line in Chart 13 plots the spread between the two). So it would make sense if the private sector wanted to allocate more of its financial assets to deposits. Because they’re held as stores of value these extra deposits were not inflationary.

The rationale in textbooks is that, by either through choice or regulatory fiat (a minimum “reserve requirement”), banks will always back some minimum proportion of their deposit liabilities (call it ρ) with reserves at the central bank: R ≥ ρD. Because, unlike the bank’s other assets, reserves don’t pay interest (this is how the story goes), this constraint generally binds: reserves are held at this minimum and the relationship holds with equality (R = ρD). Inverting it, deposits are therefore just a multiple 1/ρ of the level of reserves. 9. There’s a very clear description of this process in McLeay, Radia and Thomas (2014). 10. Many investment firms don’t have reserves accounts at the Bank of England; asset purchases allowed them to swap gilts for more liquid bank deposits. 11. More generally – and just as importantly – policy is “endogenous”: it reacts to things that would otherwise disturb inflation. This is not something to which I’ve paid much attention in this talk – I refer to it only briefly in the conclusion – but it’s a very important issue if you’re trying to interpret correlations in the data between instruments and objectives. In general these are unreliable guides to what policy does because the causation can run both ways. For example, interest rates are “procyclical” – they tend to rise in expansions and fall in economic contractions. But this doesn’t mean that higher interest rates cause strong growth – it’s really the other way around. 12. Bailey et al (2020), Broadbent (2018).
As a central banker, I will of course argue that the role of the central Bank is crucial. It should be the guardian of the health of the "financial ecosystem" through reinforced surveillance and a continuous improvement of the regulatory and legal framework. Sound supervision must be promoted by an independent body, which may be more or less related to the central bank. In France as in India, banking supervision is indeed implemented by the central bank staff. Sound supervision and a clear legal framework in turn are likely to encourage foreign participation and maximise the associated benefits in terms of best practices. The need for appropriate supervision is indeed not reduced but modified or may even be increased in case of financial liberalisation. For instance, a working group in process at the BIS, in which both the RBI and the BDF are currently participating, shows that the development of local bond markets changes the types of risks faced domestically from currency risks to interest rate risks or maturity mismatches. This requires to enhance and control adequate risk management in the banking sector and in those institutions in which the risk may have been transferred. Indeed financial innovations such as credit risk transfers may well spread risks but risk does not disappear. The central bank is also responsible for producing and disseminating various sets of monetary and financial statistics whose quality is of utmost importance for policy makers and investors.

We have also seen some peaks in transaction volumes as well as more frequent and higher margin calls. Furthermore, many infrastructures have had to cope with the default of a major participant, notably in the context of the demise of Lehman Brothers in September 2008 and the corresponding spill-over effects on its subsidiaries. Fortunately, EU market infrastructures were able effectively to overcome these challenges without any major operational disruptions. In particular, the Eurosystem’s TARGET system – which is not only the backbone of the large-value payment infrastructure for the euro, but also plays a central role in providing settlement services for 36 retail payment systems and 33 securities settlement systems that are connected as ancillary systems – has proven to be  BIS Review 74/2009  1  stable and resilient. Nonetheless, I would like to mention three key stylised facts which illustrate the impact of the current turmoil: First, the values processed in TARGET in the last quarter of 2008 showed an unusually high increase of 13% compared to the first three quarters (see Chart 1). When looking at the average values settled in different time bands during the day, the main difference between the third and the fourth quarter of 2008 relates to the values settled in the last hour of operations.
As a result, after having reached record highs during the months preceding the summer, the issuance of ABSs declined sharply. Some asset classes in the structured finance markets have been hit more severely than others (Chart 2). This concerns the most complex instruments such as collateralised debt obligations (CDOs) squared, synthetic CDOs and constant proportion debt obligations (CPDOs). Among the more traditional products, commercial mortgage-backed securities (CMBSs) saw a significant decline in issuance activity. Indeed, in the latter part of 2007, due to lowered demand for structured credit products coupled with an uncertain outlook for commercial property markets, issuance of CMBSs came to a halt. Issuance activity in the euro area during the last quarter of 2007 dropped to € billion from € billion one year earlier. Also, European CMBS issuance activity during the first four months of 2008 was approximately 28% of the level corresponding to the same period of the previous year. In comparison, residential mortgage-backed securities (RMBSs) have dropped only by 15% during the same time period between 2008 and 2007 and the issuance level in March-April this year was actually higher compared with the same period last year. The sharp re-pricing of credit and liquidity risk in ABS secondary markets had an impact also on supply and demand conditions in primary markets. Prices, measured as spreads over Euribor rates, started to increase during the summer 2007 and some of the spreads stand now above 200 basis points above the 3-month Euribor rate (see Chart 3).

Bottom-line, inflation depends on the cumulative wage gap: it does not increase close to or above its target level until the cumulative real wage gap is closed. For Phillips Curve to work, the loss of welfare from a negative cumulative real wage gap has to be fully compensated first – as a stock measure, not as a flow. The policy implication from our finding is that countries which closed their cumulative real wage gap should be much more prudent in further wage increases – because they will be seen in inflation much faster and larger than in the recent past. For countries which have not closed their cumulative real wage gap the implication is that inflation will remain subdued until they close their cumulative wage gap. Monetary policy cannot work in isolation. Its efficiency is influenced by the fiscal policy, by the wage policy in both the public and the private sector. Monetary policy is not a new-born. It matters that we did not only last summer, but quite some time ago. My two daughters, now 10 and 6 years of age, are still fascinated by the Disney’s animation “Frozen”. In that movie, Princess Elsa convincingly sings that “Past is in the past”. However, fairytales do not apply in real life. The past still influences our current consumption choices, and therefore inflation and monetary policy decisions. Moreover, monetary policy is less effective if it is done from an ivory tower.
From a broader perspective, the introduction of the PEPP – and the June and December expansions, which increased the maximum volume of net purchases to € trillion – led to a period of gradual easing of financing conditions in the euro area, not only for sovereign debt, but also other market segments such as corporate debt. In addition, according to analysis by the Banco de España, the PEPP is having a markedly favourable impact on GDP growth and inflation in the euro area.1 This easing has been essential for providing fiscal authorities in all countries in all euro area countries with room for manoeuvre, which has allowed them to deploy the measures to support the income of households and firms that I have mentioned earlier. In addition to the PEPP, another key instrument in the monetary policy response during the crisis are the TLTROs. This programme affords banks funding under particularly advantageous conditions, provided they meet certain targets in terms of lending to firms and households (excluding, in the latter case, loans for house purchase). With the onset of the pandemic, this programme was modified to make it even more attractive to banks, enabling them to obtain funding at an interest rate that could temporarily be as low as -1%, on the condition that they do not reduce their volume of eligible lending in light of the pandemic crisis. This instrument has also proved very effective.

7  In terms of communication, however, there may be some differences that are significant in practice. BIS central bankers’ speeches  3  on the risks one wishes to counteract. A monetary policy that leans against the wind therefore gives little “benefit”, while the “cost” in the form of poorer price stability and macroeconomic stability is high. On the other side of the debate it has been pointed out that it is not necessarily a disadvantage that monetary policy is blunt, in the sense that it has a broad impact on the economy, as it then “gets in all of the cracks” and is difficult to circumvent. 8 What the benefits and costs of using monetary policy to counteract financial imbalances will be is also an empirical question. Here, as well, the problem is that the practical experiences of a monetary policy that leans against the wind are still limited. Should the level of the inflation target be changed? Another question being discussed is whether the level of the central banks’ inflation targets should be changed. The debate since the financial crisis has primarily concerned whether the target should be raised, but most recently there have also been arguments for lowering the target. Should central banks lower their inflation targets? It appears to be mainly in the debate in Sweden that arguments in favour of lowering the target have been put forward recently. 9 But they have also arisen in other countries to some extent.
To date, in order to implement its monetary policy, the SNB has allowed the three-month Swiss franc Libor to fluctuate within a range. Obviously, this element of its strategy will have to change. The SNB will announce the requisite changes in due course. Conclusion Ladies and Gentlemen, to conclude: We have seen that, ten years on from the crisis, central banks’ basic mission has not fundamentally changed. However, the environment in which they operate has evolved and continues to do so. For this reason, it is essential that the SNB has a precise understanding of the changes it faces, and adapts itself in response, in order to ensure the continued and optimal fulfilment of its mandate. To date, the SNB has been able to rely on a sound strategy and on the skills and state-of-theart technologies that allow it to remain agile in a constantly changing world. I am convinced that it will continue to do so in the future. Thank you for your attention. 7 Information on the working group, including updates on outstanding issues, is available at www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_reformrates. Page 9/9  Ten years after the crisis: evolving markets and the challenges for the SNB Andréa M. Maechler and Thomas Moser Member of the Governing Board / Alternate Member of the Governing Board Swiss National Bank Money Market Event Geneva, 8 November 2018  Sources: FSO, SNB.

Although economic developments are favourable, inflationary pressures remain low. Moreover, the Swiss franc remains highly valued and the situation on the foreign exchange market is still fragile. Against this backdrop, the contours of a ‘new normal’ are emerging for central banks. While there are still many significant unknowns in the political, geopolitical and economic arenas, one thing is certain: the environment in which the central banks operate has evolved considerably, mainly due to structural changes. Some of these changes had already begun well before the crisis, but they have accelerated in the intervening period. I am thinking here of the digitalisation of the economy, for example, as well as the emergence of new technologies on the financial markets. In this speech, I would like to outline how the SNB has had to adapt – and continues to adapt – to make sure it is always in a position to fulfil its mandate.
Strengthened liquidity standards have given the market greater confidence that banks possess adequate resources to weather temporary storms that arise. At the global level, Basel III has helped to level the competitive playing field in a number of ways—including, most recently, by imposing constraints on banks’ use of internal models to meet their capital requirements, and by introducing a leverage buffer for 1/8  BIS central bankers' speeches  systemically important firms, similar to what we already have in place in the United States. New regulatory standards have been complemented by a supervisory framework for the largest banks that explicitly acknowledges the impact that distress at such firms could have on financial markets and the economy. 4 These efforts have led to considerable improvement in risk management at banks, which should help better sustain the flow of credit to the real economy throughout the business cycle. Second, considerable progress has been made in terms of resolution. Systemically important banks now have living wills that provide a roadmap for how these firms would be resolved in the event of imminent failure. Moreover, there is now a well-defined mechanism under Title II of the Dodd-Frank Act for recapitalization of a failed systemically important firm. The FDIC now has the authority to initiate a “single point of entry” resolution, which places the parent holding company into FDIC receivership and transfers its subsidiaries to a new parent company.

However, if the monetary authority is not independent and focuses on other more short-term goals, it may repeatedly use monetary policy to stimulate demand above the level that would be consistent with its inflation objective, in which case an inflationary bias will be generated. In the short run, higher levels of economic activity and employment could be attained, but costs would emerge later on. The inflationary bias would ultimately be anticipated and incorporated into agents' expectations and, therefore, into price-setting and wage bargaining. The outcome would be higher inflation without any lasting improvement in the economy's level of output and employment. This would detract from monetary policy efficiency and the commitment to price stability would no longer be credible. Taking the long view that price stability requires is more difficult for political authorities, which naturally may be inclined to give priority to shorter-term considerations. In my view, the time-inconsistency argument for an independent monetary authority is also relevant – and thus, may also be applied – to the need for an independent financial supervisor. This is because short-term incentives to relax supervisory policies may have important consequences for financial stability in the long run, which may, in turn, also affect monetary policy-making. Moreover, this argument applies to both micro- and macro-prudential supervision. The importance of independence in this field is actually recognised worldwide and enshrined in the Basel "Core Principles for Effective Banking Supervision".
I actually suspect that this number may understate the economy’s forward momentum. That is because real GDP growth in the quarter was held back by a sharp slowing in the pace of inventory accumulation. In my view, the revival in demand, production and confidence  2  BIS central bankers’ speeches  strongly suggests that we may be much closer to establishing a virtuous circle that will support stronger growth. What I have in mind is a cycle in which rising household and business demand generate more rapid income and employment growth, which in turn bolsters confidence and leads to further increases in spending. The only major missing piece of the puzzle is the absence of strong payroll job growth. We will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established. With respect to the labor market, last Friday’s report helps resolve some conflicting signals. On one hand, the unemployment rate has fallen sharply over the past three months, dropping to 8.9 percent from 9.8 percent two months earlier. On the other hand, payroll employment gains had been very modest and were not consistent with a sustained drop in the unemployment rate. Last Friday we learned that the economy added 192,000 jobs in February, and estimates of previous job growth were adjusted upward modestly. Particularly encouraging is the growth of manufacturing jobs. Over the past year we have added factory jobs at the fastest pace since the 1990s.

From peak to trough, employment declined by roughly 3 percent in Queens, far less than the roughly 7 percent plunge nationally and the 4.5 percent loss in New York City as a whole. Although borough-specific economic data are not quite as current as city-wide data, we at the New York Fed see clear indications that employment in Queens stopped declining in the first half of 2010. We hope that upcoming reports will show a sustained upturn. With prospects for the national economy improving in early 2011, the outlook for Queens’ diverse and vibrant economy – and New York City’s as a whole – seems to be brightening as well. Conclusion To sum up, the national economy experienced a pick-up in activity during the last quarter of 2010 that shows signs of continuing in 2011. Although the city’s economy saw some loss of momentum, I would not be overly discouraged. After all, soft patches are not uncommon during economic recoveries. Both nationally and regionally, unemployment remains stubbornly high, but many indicators suggest that conditions are in place for stronger growth in the coming months. Thank you for your kind attention. I would be happy to take a few questions. 6  BIS central bankers’ speeches
It could be said that Swish has replicated the advantages of cash, adapted to today’s technology. However, one difference is that cash is central bank money, while Swish mediates payments in private bank money. Swish’s rapid growth has contributed to the further marginalisation of cash. Since 2008, cash usage has fallen by about 50 per cent in Sweden. In surveys, only about 10 per cent of people in Sweden report having used cash for their latest purchase. At the same time, 20 per cent report that they use their mobile telephone to  20 Swish statistics can be downloaded from www.getswish.se/sv-press/statistik/. 8 [15]  make payments at least once per week. 21 Half of traders expect that they will stop accepting cash as a means of payment within seven years. 22 There is reason to believe that instant payments will be an increasingly dominant form of payment in the future. Declining cash usage is leading to increasing demand for electronic alternatives that enable instant payments and account transfers. 23 Another reason is that risks for the players on the payment market decrease when electronic payments are instant. At the same time, we are seeing interest in payment solutions increasing among major internet companies. One of the reasons for this is new EU regulations aimed at increasing competition and making it possible for new players, including Fintech 24 companies, to enter into the market and offer innovative services on equal and non-discriminatory terms.

A little over 350 years ago, Stockholms Banco, which later became the Riksbank, became the first issuer of modern paper banknotes because people wished to avoid having to carry heavy copper coins around. Now we are facing a situation in which we will perhaps be among the first in the world to launch a new kind of central bank money, a kind adapted to today's digital society and the needs that exist there. When market conditions are changing rapidly due to new technical innovations and increased European integration of technical systems, the Riksbank must adjust its range of services. Among other things, we are planning to modernise our range of settlement services. I also think that we should extend the opening hours of RIX and ensure that our systems are technically constructed so that we can offer the possibility of settling instant payments in central bank money so that the market does not start to use alternative, less efficient solutions. There are also interesting possibilities here for an e-krona to cover the need for central bank money for the general public in a digital world. One possible way forward is for us to continue to analyse and develop a pilot version in 2019. There is also reason to review how legislation regarding the legal tender can be adjusted to the new digital reality. How else will the position of the Swedish krona be protected if cash disappears? All of these issues must be managed together with other players such as the market, public authorities and legislators.