samchain/econo-pairs-v1 huggingface dataset:
As feared by one distinguished economist of an earlier generation, “every business venture [risks being] transformed into a speculation on monetary policy”.4 In those circumstances, it may well have seemed reasonable to assume that recent inflation outturns were a good basis for guessing the near-term path of inflation. And given the evidence, firms and households could also have been forgiven for acting on an assumption that the authorities would be slow to respond to excess demand and so to upward pressures on inflation. By contrast, the current regime seems, so far at least, to enjoy high credibility. In consequence, when setting prices, firms might well place more weight on policy delivering inflation in line with the target than on recent inflation outturns. If so, that might be part of the explanation for the much lower persistence in inflation I described earlier. In other words, when shocks to the economy cause inflation to deviate from target, firms may nevertheless set prices on the basis that it will return to target fairly quickly – which would, of course, itself help to bring inflation back to target. In a similar  3  Tucker P. M. W. (2004), ‘Risk, Uncertainty and Monetary Policy Regimes’, Bank of England Quarterly Bulletin, Spring 2004, pages 84-96. 4  Simons, H. (1947),’Rules versus authorities in monetary policy’, in A Positive Program for Laissez-Faire and Other Essays, Chicago. 2  BIS Review 16/2005  vein, firms and households might now expect the Bank to tweak policy fairly promptly in response to shifts in demand.

The internet, or e-commerce, also brings greater contestability, by making it a lot easier for businesses to check the prices of competing suppliers, and for consumers to compare prices across different retailers (Table 3). Over time, these forces would be expected to reduce firms’ margins – at least in sectors that were not previously especially competitive. So long as that process of adjustment was underway, inflation would tend to be lower than would otherwise be implied by any given set of demand conditions. In addition, if and when their margins became thinner, firms might become more aggressive in controlling costs in the face of fluctuating demand, which might weaken the pass through of demand shocks into inflation. The new monetary framework might reinforce some of those effects. Over recent years, more than a handful of business managers have commented that, when inflation was both high and highly variable, it used to be easier to implement – or ‘get away with’ – price increases. In a low inflation environment, it should be easier for business customers and consumers to distinguish relative price changes from increases in the general price level. That too should foster greater flexibility and efficiency in our economy; and is one of the contributions that low and stable inflation can potentially make to broader economic welfare. One striking example is the distribution sector. Anecdotally, competition in UK retailing has been intense. This seems to manifest itself in the aggregate data in two phases.
17  18  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  18  Chart 15: Global Dependency Ratios  160 140 120 100 80 60 40 20 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060  0  World Middle-income countries  High-income countries Low-income countries  Source: United Nations, Department of Economic and Social Affairs, Population Division Note: Dependency ratio is population aged 0-19 or 65+ per 100 aged 20-64  A second supply-side effect working in the same direction is globalisation. The world witnessed many decades of under-interrupted growth in world trade and global value chains after the Second World War, much of it associated with the rising role of China in the world economy. 19 On average since 1983, global trade volumes have risen by around 5½ % per year, roughly double the rate of growth of the world economy. The Covid crisis has decisively broken those trends. Global trade volumes collapsed by around 15% at the peak of the Covid crisis, compared to a fall in global activity of around 9% (Chart 16). The crisis saw the fracturing of some global value chains, in part as a result of countries prioritising domestic over international supply of some goods and services.

As a result of these decisions, the Federal Reserve is currently adding $ billion in longer-term securities each month to its holdings, in addition to reinvesting principal payments from its holdings of agency MBS and agency debt securities into agency MBS.1 Under this program, we have bought about $ billion in Treasury securities since January and about $ billion in agency MBS since mid-September, bringing the total par value of the Federal Reserve’s SOMA (System Open Market Account) portfolio to over $ trillion.2 In my comments today, I will describe the key differences and similarities between the recent policy action and previous programs and discuss how the Desk implements these asset purchases. As always, the views expressed here are my own and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System.3 Outcome-based purchases The FOMC’s current asset purchase program has some key differences from earlier policy initiatives. When announcing previous programs to change the size or composition of its balance sheet, the FOMC communicated an expected total size of each program and an anticipated date by when it would be completed. Under the current asset purchase program, the FOMC has announced only the monthly pace and composition of purchases and noted that purchases will continue until there is a substantial improvement in the outlook for the labor market in the context of price stability.
In this setting, monetary policy needs to avoid deviations from our target becoming entrenched and return inflation to 2% in the medium term. Two considerations are important here. The first is the destination of monetary policy: we need to normalise policy, and be ready to adjust rates by as much as necessary to reach our inflation target in the medium term. The second consideration is the pace of rate increases: since interest rates are rising from very low levels, the pace of rate increases can mobilise the signalling channel of monetary policy directly. Let me address each of these points in turn. The destination of monetary policy First, when inflation is high and growth is constrained by inelastic supply, monetary policy cannot remain expansionary and add to inflationary pressures by pushing up demand. It is therefore appropriate to pursue a strategy of monetary policy normalisation. As I explained in a blog post earlier this year,[11] normalisation implies ending net asset purchases and then raising rates to neutral levels – so levels that are neither expansionary nor restrictive. That is why the ECB has not only started raising interest rates, but also communicated that we expect to raise interest rates further over the next several meetings. And to ensure that these changes in our policy stance are effective, we have taken several decisions over the last few months to preserve the orderly transmission of our stance throughout the euro area.

I think successive Chancellors came to recognise that the opaqueness of the existing decision-making process was inappropriate in principle in an effective democracy, which requires that we should each be accountable for the decisions that we take or for the advice that we give. They may also have thought that the public generally and Parliament in particular would not put up with it for much longer anyway. Or they may simply have felt that they were no longer prepared to carry the can for the bad advice they received. Whatever the motivation it is to their great credit that they were prepared to put their own reputations - as well as that of the Bank - on the line in this way! It not only allowed the Bank to express its own analysis and judgements about monetary policy publicly, it actually required us to do so. That really concentrated the mind I can tell you; and it provided us with added stimulus to sharpen up our act. But for it to have this effect it was crucial that the intended integrity of the process was respected. What you saw in the minutes of “the Ken and Eddie show” was verbatim the advice which I gave to the Chancellor and which I had discussed with senior colleagues beforehand. This new transparency was a big step towards greater independence for the Bank.
Notes: The surprise impact is normalised to 10 basis points for the six-month (LHS) and two-year maturity (RHS), respectively. An instructive way to rationalise those patterns is by reference to the expectations hypothesis of the term structure, according to which the long-term rate on a bond equals the average of short-term rates expected to prevail over the maturity of the bond. Under this assumption, a contemporaneous surprise in the shortterm rate influences the short end of the curve one for one, while long rates will typically be affected less than one for one. [9] By comparison, a forward guidance surprise can be interpreted as leaving the current rate untouched while affecting the short-term interest rate path in the near and medium term. Taking an average over such an expected rate path gives rise to the observed hump-shaped footprint. However, simple versions of the expectations hypothesis find little support in the data. Besides the average of expected short-term rates (the “expectations component”), long-term bond rates typically contain term premia, which are time-varying. In a nutshell, term premia are an average of expected excess returns over the lifetime of the bond, where the excess return measures the return from investing in a longterm bond over a short time period in excess of the risk-free short-term rate prevailing over that period. [10]  Accordingly, term premia reflect both the riskiness of long-term bonds and the compensation required by investors for that risk.

Notes: The figure shows by how much the term premium component of euro area sovereign yields (weighted average of Germany, France, Italy and Spain) with maturities of one to ten years is estimated to be compressed due to the APP through the duration channel at three dates: the announcement of the APP (Jan 2015), the extension of the programme in June 2018, and the announcement of the restart of net purchases in September 2019. Chart 9 APP impact on ten-year euro area sovereign yield over time (basis points)  Sources: ECB, based on Eser et al. (2019). Notes: Evolution of the APP impact on the ten-year synthetic sovereign yield (weighted average of Germany, France, Italy, Spain). The impact is derived on the basis of an arbitrage-free affine model of the term structure with a quantity factor (see Eser et al. 2019). Latest observation: September 2019. The first point is January 2015 when the ECB had just announced that it would start purchases in the following March at a rate of € billion per month, intended to run until September of the following year. According to ECB staff estimates, the anticipation of the purchases, the associated balance sheet accumulation of the ECB and, as a flip side of the coin, the expected duration extraction were associated with a term premium compression of almost 50 basis points for the ten-year maturity. For shorter-term bonds the effects are lower, such that the expectation of asset purchases is estimated to have led to a flattening of the curve.
Another example is Apple, which is restricting which payment services can be offered on its mobile devices. In addition, plans are constantly being launched for new kinds of money and payment systems that offer both customer services and settlement, most recently Libra, a venture backed by Facebook and other investors. As an authority responsible for promoting an efficient payment system, Norges Bank needs to consider the whole payments chain. We also need to ask ourselves whether it is enough to be a promoter and regulator or whether we need to take on greater operational responsibility in order to perform our social mission. Second, changes are taking place in the ownership of critical parts of the payment system. A relevant example is Mastercard’s planned acquisition of one of the key parts of Nets. The Nordic P27 initiative is hardly the last push for more international ownership of infrastructure for payments in Norwegian kroner. At Norges Bank, we need to assess the best way for us to ensure that society’s interests are being safeguarded. Future structure of real-time payments Norway was an early adopter of digitalisation and its payments infrastructure has been worldclass. We have reaped the benefits for many years. But then the development of common infrastructure came to a halt. A number of neighbouring countries have built payment infrastructures that in some areas are now ahead of ours. Common infrastructure makes sense. It enables us to realise economies of scale, a wellfunctioning payment network and a level playing field.

Jon Nicolaisen: How important is it for a nation to have a payment system? Speech by Mr Jon Nicolaisen, Deputy Governor of Norges Bank (Central Bank of Norway), at Finance Norway's payments conference, Oslo, 14 November 2019. * * * Please note that the text below may differ slightly from the actual presentation. The payment system and Norges Bank A nation needs to have a well-functioning payment system. Without fast, inexpensive and secure payments, a modern society grinds to a halt. Users today have access to payment methods that are dependent on large-scale IT systems to process payments efficiently. We need to ensure that the payment system can adapt to new technologies and meet the needs of business and consumers in the future. The Storting (Norwegian parliament) has assigned Norges Bank the task of promoting an efficient and secure payment system. This is clearly spelled out in the new Central Bank Act, which enters into force at the turn of the year. Norges Bank is the operator of the payment settlement system and supervises interbank payment systems. These operational roles may take on greater importance in the coming years. Let me point out two trends. First, we note increasing vertical integration in the payment market. Customer interface services are becoming more tightly linked to the underlying infrastructure. We saw an example here in Norway when Vipps merged with BankID and BankAxept. There is also a tendency for common contractual arrangements that were previously situated with industry organisations to be relocated to product companies.
In this case, the draft stability law includes new coercive instruments to ensure the budget targets are met by all levels of government. Provision is made for imposing sanctions, regional government expenditure must be automatically adjusted in certain cases of non-compliance and it is even envisaged that the central government may impose compulsory adjustment measures on local and regional governments. I consider that these new legal mechanisms can be extremely effective in ensuring discipline if they are applied rigorously and appropriate procedures are established to supervise the budget outturn during the year. In this respect it is vital, as established in the law’s passage through Parliament, that these provisions are applied as from their approval, in time to be used in the current consolidation process. Finally, the draft stability law retains the clause stipulating “no bail-out” between governments which was introduced in the previous law. I consider that, as at European level, this clause is crucial to prevent the cost of a government’s inadequate fiscal conduct from being passed on to others and to ensure that the capital market exercises disciplinary effects. At the same time this draft law allows regional and local governments to request extraordinary liquidity support measures from the State. In this case a plan to ensure that the fiscal targets will be fulfilled must be submitted and the payment of each tranche of financial aid must be dependent on such fulfilment.

Chart 7: Canadian and Australian banks better  Chart 8: Real short-term interest rates were  capitalised than UK’s in 2005  generally lower in Canada and Australia Per cent 7 Australia  6  Canada  5  UK  4 3 2 1 0 -1 Sources: Bush, Guimaraes and Stremmel (2015). Tangible common equity as a share of total unweighted assets. 2005 and 2006 average. 10  1998  2000  2002  2004  Sources: Thompson Reuters Datastream and Bank calculations. See also Ferrero et al. (forthcoming). 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  II: Some simple mitigants If this is right then the gains from formal co-ordination might not be that significant. Even a single, “joined-up” committee would generally find itself reaching for macro-prudential tools to control financial risk and using interest rates to moderate cyclical swings in demand and inflation. Shortly, in the next section, I’ll offer a more positive reason to keep some distance between the two policies. Before that, I should point out that, even in instances where there may be gains from policy co-ordination, there are things you can do within the existing framework. One involves the appropriate choice of secondary objectives. As I’ve tried to explain, the case for cooperation is stronger the more severe and frequent any conflicts between the respective objectives. There’s a very general result that puts the same point the other way around: if you give the two committees exactly the same objectives there is no co-ordination problem.
19 This was one of the reasons behind my reservation against the purchase decision in February 2015, see my comments at the monetary policy meeting (Riksbank 2015, p. 4-8 and 23-24). 9 [30]  Figure 6. The market already expected lower policy rates than the Riksbank Per cent  Note. Solid lines refers to outcomes. The red broken line refers to the market pricing just before the monetary policy meeting in February 2015, the blue broken line refers to the Riksbank's forecast in the Monetary Policy Report in February 2015. Source: The Riksbank. In Sweden, the signalling instead seems to have functioned in a completely different way. During 2013 and 2014, it became increasingly common for various agents in the Swedish debate to question whether the Riksbank placed sufficient emphasis on bringing inflation up to the 2 per cent target. But the combination of asset purchases and negative policy rate seemed very powerful. In 2015, the picture of the Riksbank's priorities therefore changed rapidly. There was no longer any doubt that the Riksbank was prepared to use all possible means to safeguard the credibility of the inflation target. It has probably been clear from my earlier statements that I have some doubts about whether the purchases of government bonds significantly stimulated the Swedish economy and thereby contributed to raising inflation. But I think this signalling effect was important, and more important than I realised when we started the purchases.

Following a long period of unusually good economic performance, characterised by relatively steady growth and low and stable inflation in the advanced economies and rapid growth and development in key emerging market economies, we have seen the eruption of a systemic financial crisis of quite unusual intensity and international reach. The nearest precedent is probably the widespread closing of international capital markets on the eve of the First World War. And associated with that, we have seen the sharpest internationally synchronised slowdown in growth in the post-war period, together with an unprecedented contraction in world trade. To the public at large our present troubles are the fault of: whiz-kid financiers, who created financial instruments that even they didn’t properly understand; greedy bankers, who pursued profit and personal reward without regard to risk or common sense; somnolent supervisors, who failed to adequately regulate and restrain those bankers; and negligent central bankers, who allowed an explosion in liquidity, credit and asset prices that supported the whole rotten edifice. And all the while, the culprits were cheered on by an economics profession that was over-enamoured of theoretical models, blind to the lessons of history and subject to a severe case of “group think”. Wasn’t it blindingly obvious that the whole house of cards would come crashing down at some point? As one of those involved in responding to the crisis – and some might charge also a bit part in creating the conditions for it – I want to look this evening at how we got here.
A number of you, including Ken Rogoff, have shown that downturns associated with banking crises tend to be the most severe, and that clawing back lost employment and output in the aftermath of a financial crisis is most vexing. My colleague Mark Wynne, who directs our Globalization and Monetary Policy Institute, has written an excellent brief on this for our Economic Letter publication, which should be posted on our website today. BIS central bankers’ speeches  3  This chart of output relative to precrisis trend summarizes Mark’s conclusion: Since the onset of the financial crisis in 2008, “performance of real GDP in the U.S. is almost exactly in line with what we might have expected based on the average experience of other countries that have gone through banking crises.”1 This chart is most definitely not a pretty sight. Small wonder that American consumers – and the businesses that hire and serve them – remain in a defensive crouch. The question is: How do we change the picture? How do we get the pistons of job creation, income growth and wealth restoration pumping again? This is the gist of the discussion at the FOMC table. The press and others delineate the viewpoints around the table on an ornithological scale, dividing us up into doves and hawks. I am classified according to that delineation as a hawk. I am not offended by this, but, not unlike the stereotyping of Texas, I consider it simplistic.

Most commentary about the catalyst for these moves has focused on the shift in expectations with respect to U.S. monetary policy – and, in particular, to uncertainty about the timing and implications of Fed tapering. This focus seems generally right to me, although other factors also played a role. From one perspective, the unconventional nature of recent U.S. monetary policy adds little that is fundamentally new to the challenges that face EMEs. These policies simply represent a way of easing that was necessitated by hitting the zero lower bound on the federal funds rate. Central bankers have managed differences across countries in cyclical positions and policy stances many times in the past. This time should not be fundamentally different. But, from another perspective, we have less experience operating with unconventional monetary policy, and this creates more potential uncertainties. These uncertainties put a premium on keen listening skills on our part and clear communication among central bankers as well as between central bankers and market participants. In my view, an important fact is that our large scale asset purchase programs affect the size of term risk premia globally. This new set of monetary policies affects financial asset prices in a different way compared to changes in short-term interest rates, and we should be humble regarding what we claim to understand about this distinction. Looking ahead, it seems likely that markets will remain focused on vulnerabilities that they might have ignored prior to the taper tantrum in 2013.