samchain/econo-pairs-v1 huggingface dataset:
If the economy is close to its underlying potential, a fiscal stimulus will end up mostly in inflation rather than growth. This brings us to the next broad theme of 2017: the return of inflation and the tightening of financial conditions globally. The normalisation of US monetary policy Global inflation, which was weighed down by the fall oil prices during the past two years, has started to gradually pick up again. Energy prices have rebounded off their lows and commodity prices appear to have bottomed out. On a global basis, producer prices have started to rise since early 2016, in tandem with the recovery of commodity and industrial input prices. 3/7  BIS central bankers' speeches  Even in China, producer prices have turned positive, following 4 years of deflation. Globally, we could see a stronger pass-through from producer prices to inflation in 2017. In the US, to the extent that fiscal stimulus boosts demand and lifts inflation towards the Fed’s target, it could precipitate a faster pace of interest rate normalisation than currently priced in. The normalisation of monetary policy is a good thing and is to be welcomed. It would be in line with stronger economic growth and waning deflation risks. Faster growth in the US will be good for emerging Asia. A gradual rise in interest rates away from the zero lower bound will also be good for financial stability, helping to stem the build-up in debt and cool inflated asset prices.

Mario Draghi: Hearing at the Committee on Economic and Monetary Affairs of the European Parliament Introductory statement by Mr Mario Draghi, President of the European Central Bank, before the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament, Brussels, 23 February 2019. * * *  Introduction Madam Chair, Honourable members of the Economic and Monetary Affairs Committee, Ladies and gentlemen, I would like to start by congratulating all of you on your election, and you, Madam Chair, on your recent appointment as Chair of this Committee. It is a pleasure to appear before this Committee in this new legislative term and before my term as ECB President comes to an end. The legitimacy of the ECB’s independence, as enshrined in the EU Treaties, crucially relies on our accountability. And the Treaties have conferred this Parliament with a central role in holding the ECB accountable. Hearings before this Committee play an essential role here. In my time as President, I have found them to be extremely beneficial. When I appeared before the ECON Committee for the first time, in December 2011, the euro area was rife with financial instability; it was falling into a second recession, which eventually led to sustained disinflation and, at times, heightened risks of outright deflation.1 The euro area has come a long way since the crisis, in part thanks to the support provided by the ECB’s monetary policy.
Expanding central bank liabilities in an incremental way to support new forms of money could create a safer payment system—one that promotes innovation, mitigates potential risks, and ensures money continues to function well in an increasingly digital economy. Adapting the implementation framework to incorporate new private forms of money and potentially central bank digital currencies is complex and will require substantial further study of key issues, some of which I have raised today. This calls for an integrated approach, one that considers each instrument and its role in the monetary ecosystem. Central banks must draw on broad expertise within their institutions so that payments experts, monetary policy practitioners, financial stability and supervision colleagues explore and understand important intersections. We will also need to continue to engage a broad range of market participants, academics, and colleagues across the international central banking community as we adapt to be prepared for the road ahead. Workshops like this one help us learn from one another. Thank you all for your participation in such a rich and important set of discussions. 1 I would like to thank Julia Gouny, Antoine Martin, Matthew Raskin, Samuel Schulhofer-Wohl, and Patricia Zobel for their assistance in preparing these remarks and  colleagues in the Federal Reserve System for valuable comments and suggestions. 2 Various digital assets have emerged that are described as stablecoins, although some do not have the characteristics of money described here.

What are the implications for the central bank’s tools of interest rate control? Most central banks adjust and communicate their monetary policy stance through an interest rate target, and successful implementation entails supplying central bank liabilities in a manner that promotes conditions in money markets consistent with this stance. Central banks often rely on three pillars to control interest rates: the rates of remuneration on liabilities; the amount of liquidity supplied; and the provision of liquidity backstops. Certain design choices for the adoption and integration of digital currencies could alter how central banks use these pillars to control short-term interest rates. Pillar 1: Rates of remuneration Many advanced economy central banks currently operate in some type of a floor system, in which the administered rate or rates paid on certain central bank liabilities are a core component of interest rate control.8 The development of new digital forms of currency raises questions about how to fit new liabilities into these remuneration frameworks. In the case of a CBDC, a central bank can directly determine the instrument’s design and the return that its holder receives. If a CBDC is designed as a substitute for cash, for example, with relatively low maximum holding limits and zero interest, it may have a relatively limited impact on monetary policy implementation. On the other hand, a zero-interest CBDC that could be easily employed for large-scale payments may have greater impact.
Chart 1: Regulatory-Supervisory Independence and central bank independence, 1999-2019 (a)  (a) The data on central bank independence is drawn from Bodea and Hicks (2015) and Garriga (2016). Weighted versions of the indices are used to aid comparison. The weighting is based on Cukierman et al (1992). The second step in the analysis was to examine whether there is an association between the Regulatory-Supervisory Independence index and financial stability. Defining an ex ante quantitative indicator of the success or otherwise of prudential regulation is hard, unlike with monetary policy where such measures are easier to arrive at. But fortunately, this is less of a problem for this analysis because we have ex post observations of distress in the banking system. The authors used rates of non-performing loans at banks as a measure of financial (in)stability.9  They analyse whether reforms that increased regulatory-supervisory independence were associated with subsequent a reduction in the rates of non-performing loans. Panel data regression show a 9  That is, non-performing loans as a proportion of total gross loans. I would like to thank Matthew Willison, Hugh Burns, Nicolo Fraccaroli and David Swallow for their assistance in preparing these remarks 9  negative and statistically significant association between independence-increasing reforms and rates of non-performing loans – see Table 3.

The more independent are the actors in charge of the appointment and removal process, the more independent the regulatory agency will be. Moreover, the longer the head’s term, the more protected the agency is from the electoral cycle. Regulatory  This captures whether the agency needs government approval to issue binding legislation. Higher regulatory independence allows the regulator to adapt prudential rules quickly and flexibly and to better identify with the rule-implementation and enforcement. (a)  Budgetary  This is based on whether needs government approval on its budget, which could affect the regulator’s ability to act independently. (b)  (a) See Quintyn and Taylor (2002). (b) See page 79 of OECD (2016). Data on these aspects are drawn from the responses given by supervisors to a World Bank survey (Barth et al (2013)) and the statutes of the regulatory agencies and amendments to those statutes. The authors then aggregated these aspects into a single index of Regulatory-Supervisory Independence, covering 43 countries and the period 1999 to 2019. I would like to thank Matthew Willison, Hugh Burns, Nicolo Fraccaroli and David Swallow for their assistance in preparing these remarks 8  Chart 1 shows the average regulatory-supervisory index and the global average an index of central bank independence with respect to monetary policy. Both have increased over time, but central bank independence started growing earlier and initially as a faster pace.
The lenders expected that house prices would continue to rise, increasing the value of the collateral, an assumption which meant that the risk to the lenders was assessed as slight. The strong increase in the new forms of mortgages contributed to the overheating in the housing market. BIS Review 56/2009  1  Another factor that can also be assumed to have contributed to the housing market bubble in the United States is the US housing policy, which since the mid-1990s had become increasingly aimed at extending house ownership among households. For example, the semi-nationalised mortgage institutions Freddie Mac and Fannie Mae were to offer a particular share of their total lending to low-income families. This contributed to many households receiving loans despite having an uncertain ability to repay. The credit expansion that was seen in the United States can also be seen in a number of other countries. In autumn 2005 the housing market bubble in the United States burst and house prices began to fall. As the value of the households’ most important collateral fell, an increasing number of households could no longer renew their subprime loans at the same low interest rate. The lenders had tightened the credit terms. The interest rate shock that followed meant that an increasing number of households experienced problems in paying, which in turn pushed down house prices even further. This occurred as an increasing number of households and banks were forced to sell the houses at compulsory auctions at a lower price than before.

One thing I would like to close on is to talk a bit more broadly about issues related to Thailand beyond the financial sector. Firstly, I would like to start by saying thank you. Thank you in the sense that policymakers in Thailand recognize that we are where we are today, largely thanks to our friends from Japan. Our success in building an export-driven economy is owing to the large inflow of Japanese foreign direct investment that came to us after the Plaza Accord. Over the years, such investment has contributed significantly and substantially to the improved living standards in Thailand today, and again, thank you for that. I think our partnership is something that we both benefited from as Thailand benefits from the partnership with Japan, and Japanese firms have also benefited from being here in Thailand. We recognize that things are different now, and the reasons that brought you here to Thailand back then are probably not the same reasons that will bring in new investment today. Therefore, we need to look a bit beyond and think about a new investment thesis for Thailand. Back then, we were a rapidly growing economy in the years before the Asian financial crisis, growing at a rate close to 10 percent a year. People were talking about Thailand becoming a newly industrialized economy at that time. That story is very different now, but I do think Thailand is still a good place to do business.
The UK economy has also been facing high and rising degrees of uncertainty about future trade, though the source has been different – Brexit. According to our Decision Maker Panel, the number of companies reporting Brexit as among their top three risks have risen from one-third in April 2018 to around 50% now. Most recently, the perceived risk of a “no deal” Brexit has risen, with betting odds placing a roughly 30% probability on that event, double the probability earlier this year. With no precedent, it is very difficult to gauge the economic impact of a “no-deal” Brexit. One simple way of doing so is simply to ask companies how they think it would affect them. This is something the Bank’s regional Agents have been doing since late-2018. Chart 30 shows companies’ expected responses for output, employment, investment and exports under “no deal/no transition” and “deal with transition” scenarios using the combined results of four surveys from December 2018 to April 2019.28 The expected responses to a “no deal” are negative, significantly so. Output is expected on average to fall by 3 ½%, employment by 3% and investment by 1 ¼%. By contrast, expected responses to a deal scenario are all positive. Looking at the different waves of the survey, the good news is the expected negative effects of “no deal” were somewhat smaller in the later waves compared to the first in December 2018. That likely reflects the significant increase in Brexit planning and preparation, by companies and the government, over that period.

Chart 32: Real interest rates and unemployment (1999 – latest) Unemployment rate (per cent)  14  UK  12 US 10 Euro area 8 6  Euro area latest  4 2 UK latest  0 -6  -4  -2  US latest  0 2 Real interest rate (per cent)  4  6  8  Sources: Thomson Reuters Datastream, ONS and Bank of England calculations. Notes: Real interest rates defined in simple terms as current short-term central bank policy rate minus headline CPI inflation rate. 31  All speeches are available online at www.bankofengland.co.uk/speeches  31  The UK occupies an unusual, mid-Atlantic position. It has similar levels of real interest rates to those in the euro area, at the same as having similar levels of unemployment to those in the US. Put differently, relative to both the US and the euro area, and its historical past, the current UK monetary stance looks relatively accommodative. For the same output gap and a higher rate of inflation, the UK’s monetary stance is 2 percentage points looser than in the US. There may well be good grounds for these international differences – for example, differing levels of neutral real rates and different natural unemployment rates. Nonetheless, the very different starting positions of the economy and monetary policy should give us cause to pause before simply assuming central banks should be moving synchronously, even when faced by a common global shock.
But during this period, too, there have been substantial fluctuations in the short term. International developments important – even with a floating exchange rate During my years on the Economic Council of Swedish Industry, I have sometimes gained the impression that some analysts have considered that the floating exchange rate means that one can disregard developments in costs and wages in competitor countries when assessing the competitiveness of Swedish companies. But this is wrong. The development of the exchange rate, as shown in Figure 7, has been affected by a number of factors, where competitiveness is only one factor and moreover not always an important one. Competitiveness is affected by differences in payroll expense and increases in payroll expense in Sweden and other countries. It is also affected by differences in productivity and increases in productivity. A rapid increase in productivity in Sweden is therefore particularly beneficial if it is higher than the increase in productivity abroad. Finally, it is important to see  BIS central bankers’ speeches  5  how prices develop in the markets where Swedish companies exposed to international competition sell their goods and services. Wages in Sweden have increased by on average 2.7 per cent a year since 2010. This is shown in Table 1. The increase is in line with that in Germany, but higher than the increase in the euro area as a whole. It is also higher than the aggregate for OECD countries.

In my view this trade-off explains why we have raised Bank Rate progressively since last December in increments of 0.25% after the first rise. We have judged what we need to do in the face of these very big external shocks which, assuming Bank Rate following the market path used for the May MPR forecast, will see inflation fall very rapidly next year, and return to target in 2023, and then go below target. But other things may not be equal, and we have been clear that we see the balance of risks to inflation as on the upside. Here, I would pick out the risks from domestic price and wage setting, and this explains why at the MPC’s last meeting we adopted language which made clear that if we see signs of greater persistence of inflation, and price and wage setting would be such signs, we will have to act forcefully. In simple terms this means that a 50 basis point increase will be among the choices on the table when we next meet. 50 basis points is not locked in, and anyone who predicts that is doing so based on their own view. We do not pre-announce Bank Rate decisions for the very simple reason that MPC decisions are based on deliberation at the time among nine people focused on returning inflation to the 2% target sustainably.
5  Nominal wage flexibility can also be discussed on the basis of other different points of departure. One is the length of the central wage agreement periods. This reflects a balance between, on the one side, keeping down negotiating costs - including the risk of labour market conflicts - and on the other side ensuring that wages are not locked for an excessively long period, so that wage levels can be adjusted in the event of an unexpected shock. If membership of Stage Three of EMU were to give rise to greater fluctuations in economic activity than under a domestic monetary and foreign exchange 4  See, for instance, Calmfors, L. (2000): “EMU och arbetslösheten” (EMU and unemployment), Ekonomisk Debatt, Volume 28, no. 2. 5  See, for instance, Calmfors, L. (2002): “EMU:s effekter på lönebildningen” (The effects of the EMU on wage formation), Appendix 2 to Stabiliseringspolitik i valutaunionen (Stabilisation policy in the monetary union), Kommittén för stabiliseringspolitik för full sysselsättning vid ett svenskt medlemskap i valutaunionen (The Government Commission on Stabilisation Policy for Full Employment in the Event of Swedish Membership of the Monetary Union), SOU 2002:16. 4  BIS Review 40/2002  policy, there may be an increased tendency to choose shorter agreement periods. If membership were to lead to more stable inflation than now, the agreement periods could instead become longer, as it would be considered easier to predict nominal wage increases.

Toward the end of the year, we will publish the results of our first round of simultaneous across major UK banks stress tests, which will follow the publication by the European Banking Authority of its stress tests in just over a week from now. Our stress tests are a real step in the direction towards the full use of such tests as one of the three pillars of the capital framework. This is a major development compared to the cumbersome and slow process of stress testing one bank after another that we developed during and after the height of the crisis. We will be using these tests to assess whether firms have capital positions and capital plans looking forwards which will provide re-assurance that they will be safe and sound under stressed conditions, as the name suggests. If they don’t – and you should take no inference on the results from what I say here – we will ask them to look again at their plans. Stress tests should not be a dramatic event, they should be part of the health check and they should prompt measured responses where necessary, and reflecting the fact that at different speeds banks are heading out of the crisis. Last on capital is the issue of loss absorbency in going and gone concern states. For the major banks this is the too big to fail problem.
Based on these commonalities and differences, I will then draw some tentative economic, financial and political conclusions about the respective experiences and relations of our two countries with Europe and more specifically with EMU. UK and Switzerland: Common features and differences: It seems to me that even a perfunctory comparison of our two countries’ relations to Europe and EMU needs to touch upon law, politics and recent economic history. Law and politics There is a fundamental judicial divide between the common law tradition of Anglo-Saxon countries and the civil law tradition of Continental Europe. Over the centuries, this divide has undoubtedly spread into culture and minds. The custom and case-based common law was institutionalized in 1154 by Henry II through elevating local custom to a unified system of law “common” to the country. It may be unwritten, as it was at the outset, or captured in statutes and codes. This judicial history is reflected by the absence of a written constitution in the United Kingdom. Civil law in Continental Europe, on the other hand, has its roots in the Corpus Juris Civilis of Emperor Justinian. It constitutes broad legal principles and doctrinal writings and is explicitly written law. This explicit and written tradition is reflected in the “acquis communautaire” of the European Union with nearly 100’000 pages and some 20’000 laws, decisions and regulations.

Conversely, when home prices are flat or declining, or mortgage credit is tight, this will put a damper on retail spending. Events of the last decade have driven this point home in a very clear way. It is well known that beginning in the mid-1990s and intensifying in the early 2000s, there was a massive U.S. housing boom that dramatically increased the value of residential real estate in the United States. Over the period from 1995 to 2006, the aggregate value of real estate owned by households and nonprofits nearly tripled, rising from $ trillion to nearly $ trillion. A remarkable, yet not widely-known, fact about this boom period is that while home values were rising very quickly, borrowing was growing almost exactly as fast. Rather than saving the extra wealth that was being generated by the housing boom, households were diverting a large share of it to other purposes. Indeed, the fraction of every additional dollar of households’ housing wealth that was consumed seems to have been higher than that for financial wealth—such as investments in equities and bonds—suggesting that they viewed the increase in home prices as permanent. In order to be able to assess the evolution of household finances more precisely, we worked with Equifax—a major credit bureau—to create a new database that tracks the credit files of a random sample of households over time.