samchain/econo-pairs-v1 huggingface dataset:
A lower mean squared gap for resource utilisation entails a better stabilisation of resource utilisation around a normal level. Consequently, the closer a point lies to origo, or “south-west” in the figure, the smaller are the total deviations of inflation from the inflation target and of resource utilisation from a normal level. From Figure 6.c, it can be seen that the lower repo-rate path from the alternative scenario in the Monetary Policy Report of October 2009 was closer to origo in both dimensions when inflation is measured in terms of the CPIF. It thus stabilises both inflation and resource utilisation better. 6  The mean squared gap for inflation measures the gap between the inflation forecast and the inflation target or, more precisely, the mean squared deviation between the inflation forecast and the inflation target during the forecast period. The mean squared gap for resource utilisation, measured as the output gap, measures the deviation between the forecast for resource utilisation and normal resource utilisation – more precisely, as the average squared gap during the forecast period. For more discussion of this see Lars E.O. Svensson, “Evaluating Monetary Policy,” forthcoming in Koenig, Evan, and Robert Leeson, eds., From the Great Moderation to the Great Deviation: A Round-Trip Journey Based on the Work of John B. Taylor (revision and update of a speech at Uppsala University on 13 March 2009). 7  One may ask why the focus should be on the CPIF and not the CPI.

Figure 5 illustrates the alternative forecasts for the repo rate, inflation and resource utilisation discussed at the monetary policy meeting in October. BIS Review 32/2010  7  As a complementary monetary policy measure, the Riksbank decided, on both occasions, to make further fixed-rate loans of up to SEK 100 billion available to the banks for twelve months. The recovery from the deep recession continued during the autumn. At the Monetary Policy Meeting on 15 December, the Riksbank resolved to leave the repo rate unchanged, at 0.25 per cent. The forecast for the repo rate was also held unchanged. How can different monetary policy alternatives be assessed? In connection with every monetary policy decision, the Executive Board makes an assessment of the repo-rate path needed for monetary policy to be considered to be wellbalanced. One natural way of assessing which repo-rate path is best in a given situation is to compare the forecasts for inflation and resource utilisation for alternative repo-rate paths. Such a comparison can be found in Chapter 2 of the Monetary Policy Report and in the material for the assessment of monetary policy in 2009 that was recently published by the Riksbank. 5 The alternative scenarios are usually presented in the form of figures that show the forecast for inflation and various measures of resource utilisation that a particular repo-rate path is expected to give rise to. 5  8  See "Material for assessing monetary policy in 2009", Sveriges Riksbank.
A major reason is likely to be the advanced globalisation of the money and capital markets and increasingly parallel international economic and price developments. Another cause may well be unconventional monetary policy measures, in particular the extensive QE programmes, which have caused bond and equity prices to rise simultaneously. Ultimately, large-scale securities purchase programmes lead to lower interest rates and reduce the supply of risk-free assets. This, in turn, leads investors to rebalance their portfolios towards riskier asset classes such as equities – which, from a monetary policy transmission standpoint, is certainly desirable. 10 In the end, rising asset prices should stimulate consumption and investment, as well as consumer prices. A related issue is the degree to which higher equity prices in the current situation can be interpreted as a sign of an improving economic and profit outlook. It is intuitively obvious that corporate earnings and equity prices move in unison – at least in the longer term – and are therefore positively correlated. However, for some time now, we have observed a negative correlation – while both actual profits and expectations have declined, equity prices have risen to new record levels, as depicted by the yellow lines. Chart 6 shows the US S&P 500 equity  10  Lower interest rates also lead to higher equity prices as they reduce the discount factor for future dividends. Page 7/8  index (blue line) and the corporate earnings per share expected for the next 12 months (red line).

And we have, of course, tried to assess the impact of the dramatic stock market decline from the peaks in 2000 on macroeconomic conditions and financial stability. In this regard, it mattered that, partly linked to the introduction of the euro, the outstanding amount of shares substantially increased in the euro area. For non-financial corporations in the euro area, the annual net issuance of shares increased from 1.7% of GDP in 1995 to 7.3% of GDP in 2000. At the same time, during the late 1990s, the distribution of shares across the euro area population broadened significantly, implying that more households invested in shares in the late 1990s than before. Corrected for valuation effects, the amount of household’s holdings of shares and mutual fund shares increased between 1995 and 2003 by 78%. Against this background, stock prices have become more relevant to economic conditions in the euro area in recent years. And indeed, when stock prices started to fall, we could see that this had a notable dampening effect on the euro area economy in the period 2001-2003. What role do asset prices play in the ECB’s monetary policy? After this description of the current situation, the crucial question is: how do asset price developments enter into the assessment of the outlook for price stability and how they influence the policy-formulation of the ECB. Recently, much attention has been devoted to the question of which monetary policy strategies are optimal in an environment of strong asset price fluctuations.
Chart 19: Outflows from open-ended funds more  Chart 20: Outflows from open-ended funds  sensitive for greater holdings of illiquid assets  more sensitive when market  Expected Fund Flows % 0 -0.2 -0.4 -0.6 -0.8 -1 -1.2 AE Equity  EME AE Gov AE Corp CRE Equity Bond Bond Funds  Source: Morningstar and Bank calculations. EME Bond Source: Financial Conduct Authority, Morningstar and Bank calculations. For more information please see the Bank’s Financial Stability Report, December 2019. 32 Illiquid assets are those that require a material price discount for a quick sale, or equivalently those that require a  significant period for sales to avoid a material price discount. For discussion, see the chapter on “Vulnerabilities in openended funds” in the Bank of England’s December 2019 Financial Stability Report. 28  All speeches are available online at www.bankofengland.co.uk/news/speeches  28  Last year, the FPC established that in order to reduce the first-mover advantage, greater consistency was needed between the liquidity of a fund’s assets and its redemption terms. To achieve this, funds should apply a pricing tool, a notice period or a combination of both that reflects the liquidity of their underlying assets (Charts 22 and 23), given by the following definitions:   Liquidity measurement: The liquidity of funds’ assets should be assessed either as the price discount needed for a quick sale of a vertical slice of those assets or the time period needed for a sale to avoid a material price discount.

On balance, the Bank’s analysis and empirical studies suggest there are no strong reasons to think that the housing tools have any significant negative long-run impact on the growth of supply capacity. The housing tools will bind more when housing activity is stronger and lenders are loosening underwriting standards, increasing both the gross benefits (i.e. reducing GDP-at-risk in a downturn) and gross costs (i.e. reducing demand by excluding some borrowers from the market). To test if net benefits are positive across different states of the world the FPC reviews central, upside and boom scenarios.20 In each scenario we first estimate the distribution of borrower indebtedness absent the tools (shown in blue shading, Chart 13, for the boom scenario). This includes an assumption about how lenders’ underwriting standards would have evolved without the tools in place. A second simulation then estimates how the distribution of indebtedness evolves differently with the tools in place (shown in pink shading, Chart 13, for the boom scenario). The gross benefits of the tools arise from a reduction in GDP-at-risk associated with the less risky debt distribution with the tools in place, compared to the risker scenario without the tools. To weigh these benefits off against the costs (the temporary reduction in housing activity) requires assumptions about the persistence of each, society’s discount rate, the probability of a downturn occurring – as the benefits are only realised in a downturn, and the preferences of the policymaker (as encapsulated in parameter 𝜙).
Hence, I require from you that the issue of binding contracts for the execution of repurchase agreements be placed at the top of your short-term agenda. Your legal staff should equally assess both the retail and the Treasury Department products. Judicial and operational assistance will be provided by the Bank of Albania, but on the other side the Bank of Albania will not intervene in solving the liquidity needs in case these needs arise from the non-observance of the law on repurchase agreements. I find it pleasing to confirm that after a general agreement on their usefulness, the package of regulations we brought to you in the first forum, has now become effective. The Bank of Albania is now expecting swift responses, in order to minimize their obligatory enforcement by us. The new regulations increase prudence in the elaboration and protection against foreign currency credit risk. I do not want to fail to disclose our stance that Albania needs a liquid and well-capitalized banking system given the situation we are going through. Regulations on transparency and obligation to disclose are another important part of the last package. BIS Review 120/2008  3  We have now taken steps to a more regulated market and other parties should follow the same steps as well. I refer here to banks’ clients who at present have, can and should be acknowledged of all their rights in relation to the banks servicing them.

I repeat from the previous forum that it is necessary for you to consider the macroeconomic consequences of your behaviour at an industrial or institutional level, since they are important factors which ensure the long-term stability of your institutions and the system in general. The difference between large and small-size banks, when public confidence in the system in general is in question, is relative. Each bank has its role and share in the system and the difference between the concept “a small bank” or “a large bank” in the context of systemic risks, is ever-increasingly reducing. In addition, the U.S. financial crisis was caused by the imprudence of financial institutions to assess the stability of private debt and accurately weigh the effect of macroeconomic developments on the U.S. household budget. Its consequences remind us of the expression “there's no such thing as a free lunch”. With regard to the issues explored in the forum held in April, I would like to bring to your attention two other issues that I believe remain indisputable priorities for our work in the future. As promised in the first forum, the Law “On repurchase agreements” has become effective upon its entry into force on August 19th 2008. Although this project was pre-announced by the Bank of Albania, according to the information made available by the operational staff of the central bank and the respective commercial banks, we notice that the entry into force of this law has found you unprepared.
If we plan to follow this route, the central banks need to have the instruments to achieve the objectives assigned to them. Interest rates are typically used to adjust monetary conditions to the objective of price stability. If the central bank is also to pursue financial stability, it needs to have another instrument at its disposal. In particular, if the objective is to counter the procyclical behaviour and excessive accumulation of leverage on the part of agents which are at the root of speculative bubbles, the central bank must be able to use instruments which affect the structure of bank balance sheets. It must be able to affect, for example, borrowing capacity, leverage, liquidity management methods or the way in which reserves are recorded in favourable phases of the cycle in order to be able to face the negative phases. These are the instruments of what is known as macro-prudential supervision, which are used in a preventive manner. In this regard, the de Larosière report was prepared in Europe in order to draw some conclusions from the crisis. 8 However, the report restricts the central banking system’s scope for action to simply issuing recommendations, while direct interventions with regard to the variables at the root of financial imbalances are not foreseen. The responsibility for implementing, or not implementing, the macro-prudential recommendations remains a national choice, to be made by the relevant supervisory authority.

In time, we will consider the case for reducing the 2% threshold to further enhance financial stability. Payments fraud and economic crime are becoming increasingly sophisticated, and the Bank as operator of CHAPS is engaging in initiatives to tackle these threats. The Committee on Payments and Market Infrastructures (CPMI) has developed guidance on reducing the risk of wholesale payments fraud related to endpoint security.10 The Bank is currently undertaking a number of initiatives to strengthen our position and support our CHAPS Direct Participants in line with CPMI strategy, which includes adjusting our CHAPS rulebook to focus on detection, prevention and response to security issues as I described earlier. 10  https://www.bis.org/cpmi/publ/d178.htm 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  At the level where fraud is most likely to touch on end-users, Vocalink piloted an anti-money laundering tool known as Mule Insights Tactical Solution (MITS)11 for a number of Faster Payments participants. MITS can retrospectively track fraudulent payments as they move between customer accounts, thereby helping to quickly identify and highlight to Payment Service Providers any suspected ‘mule accounts’. They can then take action to block funds and close these accounts, making it more difficult for fraudsters to undertake scams. We are currently in the exploratory phase of a pilot to use MITS on a subset of CHAPS data. The additional insights generated should help participating Direct Participants to better tackle further fraud activity.
We have limited experience to indicate how the interest rate at the current low level will affect output and prices over time. If growth in household demand proves to be stronger than expected, the interest rate may be raised to a higher level and more rapidly than currently envisaged. BIS Review 139/2009  11  Fiscal policy is expansionary this year, and according to the National Budget for 2010, fiscal policy will provide further, albeit milder expansionary impulses to the economy next year. Under the fiscal rule, the government budget deficit should be reduced to about 4 per cent of the capital in the Government Pension Fund – Global when activity in the economy has resumed a normal level. Norges Bank’s projections are based on the technical assumption that the structural, non-oil budget deficit in 2011 and 2012 will remain unchanged from the level in 2010. If growth in the Government Pension Fund – Global is lower than in previous years, the deficit will still be more than 4 per cent of the Fund’s capital, even after capacity utilisation has risen to a normal level. If economic developments are broadly in line with projections, fiscal policy conducted in accordance with the fiscal rule could result in a lower interest rate and a weaker krone than projected. Unemployment is high in many countries. Unemployment in Norway has not risen as sharply as previously projected. The number of registered unemployed was 2.8 per cent of the labour force in October, unchanged from September.

The Government has also provided increased loans and guarantees to Norwegian export industries, and has raised lending limits for state banks. In addition, Folketrygdfondet (the Government Pension Fund – Norway) has been permitted to increase its purchases of bonds. 6  BIS Review 139/2009  The extraordinary monetary and liquidity measures implemented were tailored to a situation in which financial markets no longer functioned. In Norway, it has been appropriate to start winding down the unconventional measures earlier than in other countries: In recent months, Norges Bank has not supplied liquidity through the currency swap lines or liquidity in foreign currency. Loans in NOK at long maturities have not been provided since February. Surplus liquidity in the banking system was increased to more than NOK 100 billion, but is now close to a more normal level. This motivates banks to revert to money market funding. The swap arrangement involving covered bonds (OMF) in exchange for government securities has made an essential contribution to securing banks’ long-term funding. The first signs that the covered bond market was beginning to function appeared in spring. The minimum price in the swap arrangement has been raised by 0.9 percentage point, from NIBOR-0.2 percentage point to NIBOR+0.7 percentage point. Use of the arrangement is currently being phased out. Norges Bank eased its collateral requirements to enable banks to increase their borrowing in the central bank. This measure is now being reversed.
This is what our “balanced approach” implies. Given my outlook for above-trend growth and inflation gradually drifting higher, the inevitable question is what this means for the monetary policy outlook. Over the near-term, if circumstances evolve relatively close to my forecast, I would continue to favor gradually reducing the pace of asset purchases by staying on the same glide path of a $ billion reduction in the monthly purchase pace following each FOMC meeting. Assuming asset purchases end sometime this fall, the focus will shift to the timing of lift-off, the pace of tightening once lift-off occurs and where short-term rates are ultimately headed over the longer-term. The issue of how the Fed will manage its balance sheet will also be relevant, as well as how monetary policy will be conducted during a period when the amount of excess reserves in the banking system is unusually large. I will give you some of my early thinking on each of these issues in the remainder of my remarks. Turning first to the timing of lift-off, how the outlook evolves matters. We currently anticipate that a considerable period of time will elapse between the end of asset purchases and lift-off, but precisely how long is difficult to say given the inherent uncertainties surrounding the outlook. If the economy is stronger than expected, causing the excess slack in the labor market to be absorbed sooner and inflation to rise more quickly than forecasted, then lift-off is likely to be pulled forward in time.

Money market mutual funds and other providers of short-term financing could rapidly shift funds into the facility away from assets such as commercial paper that support the private sector. In contrast, in the current regime, when financial crises lead to flows into less risky assets, their interest rates fall, limiting the appetite for these less risky assets. Consequently, under a full allotment setup, runs could be larger and these runs could  2  6  The floor has been more solid since the testing was extended in January for a full year. In part, this is likely because the extension allowed market participants to plan ahead knowing that they could rely on the facility. Raising the caps has also been a factor in solidifying the floor. BIS central bankers’ speeches  exacerbate the fall in the prices of riskier assets. Note that the risk here is how quickly financial flows could reverse from one day to the next, not the average level of take-up of the facility over time. Fortunately, this risk seems relatively easy to address. One could design the facility to prevent rapid inflows during times of financial stress. This could be done by building in circuit breakers such as caps on overall usage of the facility. The circuit breakers would not affect the amount of take-up during normal times or prevent take-up from rising at moderate rates. Instead, they would be in place to limit the pace and magnitude of inflows during times of stress.
This is one of the main thrusts of the reforms proposed by Jacques de Larosière. How can we strengthen financial stability at the international level? The overall reform agenda that I have just outlined would not be complete without a component concerning the strengthening of the international financial architecture. Let me conclude my speech on this point. This strengthening currently has two very visible faces: the IMF and the Financial Stability Board. The IMF has once again become one of the key actors in the new international architecture. It is tasked, together with the Financial Stability Board, with monitoring the implementation of the G20 agreements on financial regulation. It also has a central role to play in the multilateral surveillance of financial risks: since late April, it has been conducting early warning exercises on financial and macroeconomic risks jointly with the Financial Stability Board; it will also extend its analysis of the resilience of domestic financial sectors as part of the Financial System Assessment Programs (FSAP) to include all systemically important countries. Indeed, one of the notable outcomes of the G20 is that all the member countries undertook to accept this assessment by their peers, including, for the first time, the United States. This broadening of the Fund's role is being supported by a trebling of its resources, which will increase its lending capacity to USD 750 billion.

As a result, the 1-year interbank market has converged to the level of the US 1-year market rate. What type of financial regulation framework are we moving towards? The current crisis has highlighted certain failures in financial regulation and this is why, beyond the immediate measures I have just described, an ambitious agenda to reform financial regulation has been launched. This overhaul is crucial for laying the foundations of a more stable financial system. It should not be implemented in a hasty manner if we want to avoid hurting the recovery from the crisis. The G20 has laid down clear principles to guide the overhaul of financial regulation. They mainly cover three areas: the strengthening of prudential standards, the redefinition of the scope of regulation and the revision of accounting standards. Before bringing up these three dimensions, I would like to point out that the G20 Action Plan imposes a requirement for all stakeholders concerned with financial stability: how to better assess the risks facing the financial system as a whole? On this point, you will agree with me that systemic risk is THE risk that we need to take better account of. We have not been able to identify it, control it, or capture it in prudential terms. In many respects, systemic risk is the result of liquidity risk, leverage, compounded by financial innovation and high transformation risks. These factors are not easy to measure at the level of individual banks.