samchain/econo-pairs-v1 huggingface dataset:
As Figure 1 shows, most of that expansion has come in the past 7 years, in large part reflecting the implementation of monetary policy since the financial crisis that started in 2008. Maintaining credibility in the money we issue has been an objective of the Bank from inception. Since the early 1990s this has been pursued through an inflation targeting regime, and most of that period the tool of choice for monetary policy was interest rates. In the wake of the financial crisis and ensuing recession, however, Bank Rate was cut to a historic low of 0.5% – a level that was at the time considered to be the effective lower bound as further cuts could reduce the profitability of the banking sector and constrain the supply of credit to the economy. When more stimulus was needed, the MPC used a different tool – the Asset Purchase Facility – to deliver the needed stimulus by expanding the balance sheet using newly created central bank reserves to purchase £ billion of government bonds with a range of maturities out to 55 years. Of course what was once considered radical has become mainstream by today’s standards. Indeed other central banks have gone further as the circumstances of their economies have dictated. The European Central Bank and the Bank of Japan have stated their intention to purchase significant amounts of private sector assets, and some central banks have used their balance sheets to purchase other countries’ assets with the aim of maintaining their exchange rate at a certain level.

Minouche Shafik: Goodbye ambiguity, hello clarity – the Bank of England’s relationship with financial markets Speech by Ms Minouche Shafik, Deputy Governor for Markets and Banking of the Bank of England, at the University of Warwick, Coventry, 26 February 2015. * 1. *  *  Introduction  I’d like to talk to you this evening about the Bank of England’s relationship with financial markets. In particular: how we use our balance sheet and how we gather market intelligence. I appreciate my saying that may immediately make you regret giving up your Thursday evening to hear a central banker speak! But let me make the case that the central bank’s balance sheet and the way we understand financial markets is at the very heart of modern policy making. And let me also argue that the journey from “constructive ambiguity” toward greater clarity around how we interact with markets is essential for the effectiveness of a modern central bank. The Bank of England’s balance sheet is the means by which we create money and hence the source of our monetary policy responsibilities. It is the vehicle through which we provide liquidity insurance to the financial system, a crucial part of our financial stability objective. And it is the point at which the implementation of macro policies meets the micro-reality of interactions with individual institutions. In all of these the Bank has proven agile in its ability to respond to the financial crisis and the changes in its responsibilities.
If we do the exercise of asking ourselves where would the lending rate be in a hypothetical scenario without the global financial crisis, we find that it would be between 50 bp and 350 bp below its present level, with the larger effect on the interest rates on commercial and consumer loans. In the specific case of mortgage loans, the increase in the interest rate occurred between September and December 2008 can be largely linked to the implications of the external conditions on the local perception of risk (figure 4). All the above is a clear illustration of how the severe uncertainty and high risks that were unleashed last September are affecting the domestic economy. Non-bank financing sources Notwithstanding the key role played by domestic banks in funding households and firms, especially smaller ones, for the bigger companies there are other equally important credit sources. Thus, around 45% of total corporate borrowing is non-bank, with external debt and domestic bonds at the top of the list. Therefore, it is important to understand the behavior of the interest rates on these credits before offering a global outlook of financial conditions. The Central Bank of Chile has no direct effect on external financial conditions. Like banks, Chilean firms have seen their borrowing conditions tighten under the changed state of affairs. Still, our banks and firms continue to enjoy normal access to world financial markets, owing  2  Berstein and Fuentes (2003). 3  Becerra et al. (2009).

This has not altered the liquidity available in the local money market, which has remained stable, aside from some transitory turbulence in early October that was addressed by the Central Bank through the implementation of new modalities in the provision of liquidity. Secondly, the meltdown of world output and trade is increasing credit risk globally. In turn, firms and households with a better financial situation tend naturally to postpone their spending and borrowing decisions, awaiting the normalization of the financial environment, thus shrinking the demand for credit. All of this results in increased average financing cost and tougher lending standards for those agents actually engaging in borrowing operations. We can see that the various risk and volatility indicators are substantially above their preSeptember figures (figure 2). As we wrote in our latest Monetary Policy Report, 1 the extra financial burden for the clients of Chilean banks has tended to reflect precisely the higher levels of global uncertainty and their impact on the Chilean economy. I must stress that these phenomena are occurring today in every economy in the world, sometimes with catastrophic implications on their levels of output and the solvency of their financial institutions. Because we prepared as a country for a long while to confront severe deteriorations of the international economic environment, Chile and our financial market have suffered limited effects, with no sudden stops but, on the contrary, with increases in credit supply and without a generalized process of insolvency.
Unlike regular deposit insurance, where the Bank has favoured the UK moving to a degree of pre-funding of the system, it is less clear that such a regime could or should be pre-funded. But, as with regular deposit insurance, the question of whether or not any ex post allocation of costs should somehow be risk based would need to be considered. Indeed, more generally, including perhaps even for liquidity insurance, we need over time to be clearer about the principles that drive whether insurance premiums are risk based and collected up front. This is obviously difficult territory. There are arguments against any approach along those lines. I air it not so much a proposal but in the hope of stimulating serious thinking about what a COLR regime might look like. If a COLR regime could be devised, it would be very important that it was not overused. Private sector backstops should be used first; and they could be better designed. One such approach would be to require banks to take out private capital insurance. This could take a variety of forms. One idea would be straight capital insurance: ie a commitment from investment institutions to subscribe when called upon to do so by a bank. As with possible public sector capital-insurance schemes to be activated only during a systemic crisis, such private insurance could be linked to maintaining a required minimum capital ratio.

4  BIS Review 11/2004  It has been harder work to explain our thinking about the altogether more newsworthy subject of the strong growth in household spending, and its relationship with escalating house prices and household debt. Bad memories of boom and bust in the late ’80s and early-’90s get in the way of more nuanced explanations which try to reflect how the world has changed in the past decade. The truth is that the present situation is rife with uncertainties. For example, while it is not difficult to think of reasons why the level of house prices relative to income might have risen significantly in recent years, at no less than 40% above their long average, current levels definitely stretch the imagination. Are people behaving rationally? Hard to say - individuals are notoriously prone to over-optimism about their own prospects, but it is not obviously misguided to base decisions on a view of the future which reflects the record of macro economic stability I described earlier. What clearly is irrational is to assume that current rates of house price inflation will continue indefinitely. It has also been a challenge to explain how house price inflation and borrowing fit within an inflation targeting framework. One commentator has claimed that they are ‘the targets that dare not speak their name’. This is not so.
Term structure models show that, over the past year, a rise in the term premium accounted for a significant portion of the increase in the ten-year OIS rate (Slide 11, left-hand side). The ten-year OIS term premium currently stands at its highest level since 2013 (Slide 11, right-hand side). The rise in the term premium reflects two interrelated developments. One is the fundamental change in the euro area’s inflation environment (the “nominal” term premium). The ten-year inflation risk premium increased sharply after a long period of persistently low inflation (Slide 12, left-hand side). About a year ago, it turned positive for the first time in almost ten years. The other development relates to the uncertainty about the future path of short-term interest rates (the “real” term premium). The increase in inflation uncertainty, together with the retirement of forward guidance on policy rates, has raised uncertainty about future policy rates and hence market volatility (Slide 12, righthand side). As it turns out, the changes in the ten-year OIS term premium can largely explain the gap that has emerged between euro area sovereign yields and the expected future path of short-term interest rates. [20] In other words, changes in the risk-free rate have been the prime market driver, so that the spread of the euro area ten-year GDP-weighted yield over the equivalent OIS rate has remained broadly stable over the past two years (Slide 13, left-hand side).

Let us consider the prerequisites for capital account liberalisation and Iceland’s position on the path towards fulfilling them: The IMF Stand-by Arrangement has ensured sufficient foreign exchange reserves to roll over Treasury debt in coming years and address potential outflows associated with the first stages of liberalisation. When the loan facilities have been drawn in full, Iceland will probably be in a better position than many European countries in terms of refinancing risk. This will place the Icelandic Government in a comfortable position when it seeks foreign market funding once again. A central government budget aimed at ensuring a primary surplus in 2011 has now been drafted and, according to the medium-term fiscal programme, the Treasury will record an overall surplus in 2013. According to these estimates, public sector debt will peak in 2010. Fiscal consolidation is the cornerstone of the policy aimed at reviving Iceland’s creditworthiness and creating the conditions necessary for capital account liberalisation and sustainable exchange rate stability. Thus it is vital to adhere to these objectives. 2  BIS Review 138/2010  The financial system is now in a better position than it was only a few months ago to withstand the volatility of short-term capital flows that could accompany the removal of capital controls. The most recent Supreme Court judgment eliminated a large source of risk that had made it extremely difficult to estimate the banks’ liquidity. According to the Icelandic authorities’ Letter of Intent, the Financial Supervisory Authority will review the banks’ planned responses to the judgment by 15 November.
Ardian Fullani: Economic and political challenges of regional cooperation Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the round table entitled “The economic and political challenges of regional cooperation”, Tirana, 8 September 2010. *  *  *  Honourable guests, Dear participants, I feel honoured to open today this roundtable. Before anything else I want to welcome our colleagues from Oxford University, who have undertaken an important mission for Albania and the region: contributing to the growth of research capacity, of sapience, and to building of a sustained long-term response to the growth challenges we come through on our common ways, similar but unique, towards the European Union. It is a great pleasure for me and for the Bank of Albania to have the opportunity to begin a series of studies about the domestic and regional economic policy, which will assist the scientific debate about the economic growth model, also backed by a regional point of view at social, economic and political level. You may ask yourself, why Bank of Albania is so much interested in the economic growth and the economic policies overall, as the main target of the central bank is the stability of prices. In the following minutes I shall try to deal with some of the main points of the Bank of Albania’s agenda in recent years.

This over-indebtedness was moreover accompanied by a strong bias towards the construction and real estate development sector and, inevitably in an economy as strongly banked as Spain, this also led to excessive growth in bank lending and excesses in banks’ risk concentration. The relative ease with which these debts built up and their subsequent effects on activity, employment and financial stability were not, in any event, an exclusively Spanish phenomenon. Indeed, these and other similar developments have given rise to widespread initiatives at the international level to strengthen the economic policy tool box, with a new instrument – namely macroprudential supervision – being incorporated to head off this type of situation. In any event, the losses in competitiveness and excessive debt led to a large-scale imbalance in our foreign trade, resulting in a deficit of 10% of GDP in 2007 and requiring the resort to large volumes of external saving to ensure trade financing. But other elements of fragility emerged with the crisis. The worsening macroeconomic scenario and, in particular, the collapse in employment had a most adverse influence on public finances. The characteristics of labour market regulation meant that the effects of the adjustment to the sudden change in the business cycle fell basically on employment, and hardly on wage conditions or on greater hiring flexibility. In turn, the marked deterioration in public finances revealed weaknesses in the institutional workings of the public sector; in particular, the insufficiency of the disciplinary framework in place to ensure compliance with budget targets.
And when achieving the dual mandate called for additional monetary policy accommodation, the FOMC turned to other less conventional approaches, such as large-scale asset purchase programs – what many of you have heard referred to as “QE,” or quantitative easing – and forward guidance about how long the fed funds rate is likely to remain near zero. I believe these efforts have been very beneficial in helping the economy make significant progress and bringing us back closer to our policy goals. Today, with economic conditions much improved, many people are asking when Fed policy will return to normal. That is an excellent question. So in my remarks this morning I will discuss my outlook for the economy and how that outlook and the risks around it shape my views about the appropriate timing and pace of eventual policy normalization. In particular, I expect that there will be further improvements in economic activity over the next three years and that these will be accompanied by additional declines in the unemployment rate toward more normal levels. At the same time, I expect inflation to rise gradually toward the FOMC’s 2 percent target. These forecasts are predicated on maintaining a highly accommodative stance of monetary policy for a considerable time. Indeed, given our recent experience, I feel that before the Fed raises rates, we should have a great deal of confidence that we won’t be forced to backtrack on our moves and face another painful period at the ZLB.

This approach will allow us time to assess how the economy is performing under less accommodative financial conditions and reduce the odds of overaggressive rate hikes choking off progress toward our policy goals. History shows that premature exit is a risk Past experience with the ZLB also counsels patience. History has not looked kindly on attempts to prematurely remove monetary accommodation from economies that are in or near a liquidity trap. Three occasions come readily to mind: the Great Depression (which was resolved only with the massive fiscal expansion of World War II), Japan over the past 20 years, and the recent European experience. Indeed, both of the more recent episodes are ongoing today, though Japan finally appears to be making important headway toward raising inflation and eventually exiting the ZLB. The U.S., Japanese and European lessons from monetary history strongly suggest that there are great risks to premature liftoff from the ZLB or near-ZLB conditions. Unless the economy is fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that some unforeseen shock could cause the monetary authority to retreat right back into the ZLB. And the costs of being mired in the ZLB are simply very large. The ZLB prevents using our very best policy tools to address negative shocks. The ZLB means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment, which, of course, significantly impedes capital formation, future economic growth, and the health of labor markets.
The averages are computed over the period since January 2008. The latest observation is for February 2021. Nonetheless, the inescapable lags in the compilation and publication of official statistics limit their information value for real-time decision-making, especially in a fast-moving environment. For example, the quarterly sector accounts, which provide a very comprehensive picture of the financial and non-financial linkages in the economy and are extremely valuable in understanding the impact of the pandemic, take about three months to be released. Similarly, although the Harmonised Index of Consumer Prices (HICP) is released with a lag of only 15 days (and a flash estimate is published earlier, on the last day of the month), other important statistics, such as labour market indicators, only become available after a longer period of time and generally do not provide flash estimates. To address some of the limitations inherent in lagged data releases, we have, among other things, complemented standard labour market data with high-frequency indicators. For instance, hiring rates based on professional network websites were used as indicators for the number of job hires in the euro area, and the number of job postings from internet portals was used as a real-time proxy for changes in labour demand (Chart 8). ECB staff have also used text analysis to construct indicators on job retention schemes during the pandemic.

A coordinated approach across the EU could be a win-win situation, as it would reduce the statistical reporting burden of MNEs by removing the need to fill in questionnaires from 27 Member States in more than 20 languages. Sixth, further sectoral detail is needed to allow for an adequate analysis of risk exposures and account for the activities of purely internationally oriented entities. To this end, the ESCB feasibility study on establishing new data for foreign-controlled corporations in the balance of payments and the financial sector accounts is very welcome. Ideally, such data would be available for both financial and non-financial accounts. With regard to the need for a harmonised recording of SPEs in cross-border statistics, the definition provided by the dedicated task force of the IMF Committee on Balance of Payments Statistics and the provision of operational recording guidance are welcome steps. These developments will be helpful in ensuring the availability of internationally consistent statistics, with a separate breakdown for SPEs in due course. Within the EU, other important initiatives include the Early Warning System on large corporate events and the Asymmetry Resolution Meetings, which the ECB and Eurostat have set up as part of the regular statistical production rounds to reduce bilateral asymmetries in the measurement of foreign direct investment. Seventh, I would like to take this opportunity to highlight the importance of climate change as a fledgling field for macroeconomic statistics.
Decisions on interest rates were taken out of the political arena in May 1997 and delegated by the Chancellor to the new Monetary Policy Committee. It is too soon to compare the nine-member Monetary Policy Committee with the Council of Nine that ruled Siena during the fourteenth century. Exactly 660 years before the Chancellor created the MPC, the Council of Nine commissioned Lorenzetti to paint the marvellous frescoes in the Palazzo Pubblico showing the virtues of Good Government and the vices of Bad Government. There are few more convincing representations of the case for stability than those frescoes. Since the MPC has not, at least yet, discovered a modern Lorenzetti, I shall present the case for price stability in a more orthodox, if less compelling, visual form. Chart 1 shows consumer price inflation in this country over the past fifty years. The decade of inflation targeting stands out as a period of low and stable inflation. Table 1 shows that not only has inflation been lower since inflation targeting was introduced, but that, as measured by its standard deviation, it  BIS Review 68/2002  1  has also been more stable than in recent decades. Moreover, inflation has been less persistent - in the sense that shocks to inflation die away more quickly - under inflation targeting than for most of the past 1 century. Now this fall in inflation has led to sharp reductions in nominal interest rates, at both short and long time horizons, as shown in Table 2.

The costs of departing from price stability - either inflation or deflation - depend upon whether it is expected or comes as a surprise. In his 1992 lecture, Lord Kingsdown distinguished three costs of unanticipated inflation and four of anticipated inflation. I shall focus on the former, commenting on the latter only briefly. Although none of the ideas are new, research since 1992 has thrown new light on both the theoretical and the empirical relevance of the costs of inflation. The main costs of unanticipated inflation are:  (i)  Distortions to production and investment resulting from mistakes in distinguishing between relative and absolute price changes  The crucial link between price stability and production and investment is that high inflation is associated with more volatile and uncertain inflation. I showed earlier that as inflation has fallen in Britain, so too has its variability. The same link can be seen in cross-section data. Chart 4 shows the relationship between average inflation and its variability, measured by its coefficient of variation, over different time horizons for a sample of 144 countries. In all cases it is clear that inflation uncertainty increases with the average inflation rate. But does this link between inflation and its volatility mean that higher inflation results in greater variability of relative prices? Chart 5 provides the answer for the UK.