samchain/econo-pairs-v1 huggingface dataset:
The lending in krona resulted in the banks’ holdings of Swedish krona increasing, funds which were ultimately deposited with the Riksbank. This was reflected in the balance sheet in the form of larger monetary policy liabilities.1 The Riksbank and the banking system comprise a closed system, which means that the money the Riksbank lends out must automatically return to the Riksbank. During the financial crisis, the Riksbank thus functioned as intermediary and replaced the market funding the financial agents were no longer willing to provide. Instead of one bank lending to another bank, the central bank steps in and lends money to the bank needing market funding and at the same time the central bank offers a risk-free investment to the bank that no longer wishes to provide market funding. Unlike the larger central banks, the Riksbank did not buy any securities during the financial crisis, considering the loans against collateral to be sufficient. This meant that the Riksbank could relatively quickly cease its extraordinary measures when the situation improved and the loans matured. Many central banks’ balance sheets are still much larger than they were prior to the financial crisis, which reflects the central role played by the central banks, not merely during the actual crisis but also during the recovery phase. Monetary policy has been very expansionary to support economic developments, with very low interest rates and continued comprehensive central bank loans in various forms.

As you can all see, a lot has happened over the past ten years. For instance, we can observe that:   The foreign currency reserve is SEK 325 billion larger. This increase is mainly because we have borrowed the equivalent of SEK 200 billion in foreign currency through the Swedish National Debt Office to strengthen the foreign currency reserve. The Riksbank’s balance sheet 2004 and 2014 SEK billion  Source: The Riksbanken  2  The formal term in the balance sheet is “lending to credit institutions in Sweden related to monetary policy operations denominated in Swedish kronor”. BIS central bankers’ speeches  3    We have once again acquired a securities portfolio in Swedish krona. The Riksbank previously had a portfolio of Swedish securities but then this was phased out more than ten years ago.   The stock of notes and coins has declined, partly due to card payments and electronic payments becoming more common. As a consequence of this, we now have monetary policy liabilities instead of a monetary policy claim. This means that we are now borrowing excess liquidity from the banking system instead of lending money to cover a liquidity deficit. I will return to this issue later on.
There are over 2½ million Gulf War II veterans alone, many of whom served multiple tours of duty overseas, and a significant proportion of them might otherwise not be able to purchase homes today. Our nation owes them a great debt, and such a policy would provide a boost to housing demand quickly. Moral hazard Some argue that any interventions to improve the real estate market would lead to moral hazard – that is these intervention would reward bad behaviors. I think these concerns are overstated. First, the programs that have been proposed can be designed with the proper incentives to limit moral hazard and to encourage desireable behavior. Second, in contrast to the earlier phase of housing crisis when mostly subprime borrowers came under stress, many of the borrowers running into trouble with their mortgages today took out conforming loans subject to standard downpayment requirements, had respectable FICO scores and borrowed a moderate amount to finance an average house. The problem was that these purchases occurred near the peak in the market and now many of the buyers have suffered an adverse life shock such as unemployment or illness. This isn’t a moral hazard issue, this is just the bad luck associated with the timing of the purchase and an exceptionally weak jobs market. Punishing such misfortune accomplishes little. The taxpayer interest I believe that the proposals I put forward are strongly in the public interest. I also believe that they would be good for taxpayers. Consider, for instance, the proposal for earned principal reduction.

Acting through these channels, monetary policy helps to ensure that the downturn is not needlessly protracted and helps to reduce the risk that unemployment becomes entrenched at too high a level. Inflation is now above the inflation target, but we have always held the view that this has been a transitory consequence of the sharp krone depreciation in spring 2020. Low economic activity and high unemployment have a dampening effect on wage and price pressures, and we expect inflation to fall below the target in the coming year. An expansionary monetary policy stance contributes to normalising economic activity, which will in turn contribute to pushing up price and wage inflation further out. Last year we were concerned that a fall in house prices would amplify the economic downturn. The situation has since reversed. High house price inflation over the past year reflects low interest rates, but the Covid-19 pandemic itself has likely increased the willingness to spend money on housing. We are at home more and are less able to spend money at restaurants, on travel or on other experiences. A sharp rise in house prices tends to be followed by faster growth in household debt. This may lead to a build-up of financial imbalances, which in turn could amplify a future economic downturn. Weight is given to this consideration when making monetary policy trade-offs. As economic conditions normalise, it will be appropriate to raise the policy rate.
Exchange Rate Developments Real Effective Exchange Rate (CPI Based)  YTL/Basket (0.5 Euro-0.5 USD)  1.85  180  1.75  170  1.65  160 150  1.55  140  1.45  130 1.35  Jan-06  Jul-05  Jan-05  Jul-04  Jan-04  Jul-03  Jan-03  Jul-02  2-Jan-06  2-Sep-05  2-May-05  2-Jan-05  2-Sep-04  2-May-04  2-Jan-04  2-Sep-03  2-Jan-03  2-May-03  2-Sep-02  100 2-May-02  1.15 2-Jan-02  110 Jan-02  120  1.25  Source: CBRT. It is observed that the stability in YTL-denominated bond issues by foreign banks, an indicator of demand for YTL, has a tendency to continue. In the first quarter of 2006, there was no remarkable change in the maturity structure of current securities compared to the last quarter of the previous year (Graph 23). 14  BIS Review 67/2006  Graph 23. YTL-Denominated Bonds Issued by Foreign Banks 5,000  3500 3000  4,000  Amount (Million YTL)  Amount of Issue (Million YTL)  4,500 3,500 3,000 2,500 2,000 1,500 1,000 500  2500 2000 1500 1000 500  Quarter of Issue  2020  2018  2016  2014  2012  2010  2008  0 2006  1.Quarter 2006  4.Quarter 2005  3.Quarter 2005  2.Quarter 2005  1.Quarter 2005  0  Year of Maturity  Source: CBRT.

Today, we ask the European Commission and President Van Rompuy, who have been charged with this task, to put forward proposals that go as far as possible in this regard: we need to significantly enhance fiscal and economic governance in the euro area. 2  BIS Review 154/2010  Does global governance simply mean the convergence or merging of the approaches followed by the main international bodies? A lot of changes are happening in this regard: the IMF is in the process of reforming its internal governance, with emerging countries being granted more seats. The European countries have agreed to reduce their representation. With regard to the informal governance of the global economy and finance, the G20 has replaced the G7. This means that henceforth all the emerging countries as well as the industrialised countries with a systemic influence at the global level bear full responsibility for the governance of the integrated global economy. How do you envisage this governance developing in the medium and long term? Governance today is still founded on the notion of sovereign states in a “Westphalian” world, which does not correspond to the new governance needs of an integrated global economy. The big challenge right now is to speed up the move to a system of global governance that fits the new world that we have created over time, in particular over the past 20 years following the collapse of the Soviet empire and the conversion of large emerging countries to the market economy.
The Riksbank’s balance sheet SEK billion 900  900  Assets 800  Liabilities Equity  700  800 700  Other Foreign exchange reserve  600 500  600  Foreign exchange loans  400  400  300  Assets 200  100 Gold  500  Foreign exchange reserve  Liabilities Equity Banknotes and coins  0  August 2008  Government bonds  Certificates and fine tuning  300 200  100  Gold  Banknotes and coins  0  September 2016  Source: The Riksbank  The Riksbank purchases government bonds to support the upturn in inflation ... To begin with, I would like to remind you that the aim of the Riksbank’s operations is not to make a profit and deliver dividends to the government. Our task is to maintain price stability, and bond purchases are one component of the expansionary monetary policy we are conducting in order to safeguard the credibility of the inflation target. The Riksbank started purchasing government bonds in February 2015. At that time, inflation had been low for a long time, long-term inflation expectations had fallen to a record-low level and a period of falling oil prices risked pushing down inflation expectations even further (see Chart 2). In this situation, the Riksbank needed to safeguard continued confidence in its ability and willingness to stabilise inflation around the inflation target. As we know, a credible inflation target lays the foundation for efficient price-setting and wage formation and hence promotes good growth in the economy.

3 At the same time, the problems of falling inflation and inflation expectations also became increasingly apparent in the euro area. This led to the European Central Bank signalling the need for even more expansionary monetary policy in the period ahead, with low interest rates for even longer, supplemented by extensive asset purchases. The increasingly expansionary monetary policy in the euro area also led to monetary policy reactions from several smaller countries on the outside. 3 The significance of the inflation target for the economy is explained in detail in Sveriges Riksbank (2015a) and  Flodén (2015). 2 [12]  Chart 2. Inflation and inflation expectations have picked up 3  3  2  2  1  1  2.3  2.3  2.2  2.2  2.1  2.1  2.0  2.0  1.9  1.9 Inflation expectations  0  0  CPIF excluding energy  1.8  1.8  1.7  1.7  CPIF  -1  -1 10  11  12  13  14  15  16  1.6  1.6 10  11  12  13  14  15  16  Note. Annual percentage change and per cent. The CPIF is the CPI with a fixed mortgage rate. Inflation expectations 5 years ahead according to money market participants. The broken line indicates the time of the monetary policy decision in February 2015.
Figure 4 Households’ total financial assets Per cent of disposable income 550  550  Ireland Spain Denmark USA United Kingdom Sweden  500  450  500  450  400  400  350  350  300  300  250  250  200  200 96  98  00  02  04  06  08  10  Source: OECD  6  BIS central bankers’ speeches  Policy in line with international debate and our mandate The policy conducted by the Riksbank has sometimes been characterised as “difficult to grasp” and “strange” in the debate in Sweden – that we are conducting housing policy” and that we “are not following our mandate”. 8 I hope that this description has put forward two points in particular. The first is that the policy conducted by the Riksbank has been well in line with the international discussion that arose after the crisis and concerns how best to take into account risks linked to household indebtedness and developments in the housing market. If anything, as I noted earlier, the Riksbank was among the first to highlight these problems. The second point that I hope has come across is that the policy the Riksbank has conducted is well in line with the mandate we have been given. The Riksbank has not acted on the basis of any hidden agenda to try to attain some other purpose, whatever that might be.

Likewise, the Committee rejected proposals for supplemental disclosures that would be optional under the New Accord. This has admittedly resulted in disclosure requirements that are more detailed and perhaps less elegant than a simple expression of principles might be. But perhaps supervisors can take some comfort from the physicist who recommended that “if you are out to describe the truth, leave elegance to the tailor.” Consistency of Accounting Standards and the New Basel Accord One cannot discuss transparency and market discipline without considering the mechanics through which financial data are recorded and reported. And this brings me to a final key observation raised in comment letters, namely the industry’s position that if we are to leverage market discipline through better reporting, the Committee should clarify the differences between accounting standards and supervisory objectives. Numerous institutions have called on the Committee to continue to align the regulatory framework more closely with the converging standards in accounting worldwide. Many industry representatives have noted quite correctly that a greater degree of accordance is warranted especially now that the New Basel Accord includes explicit disclosure requirements intended to promote greater insight into a bank’s risk profile. Likewise, the Basel Committee’s treatment of provisions and the valuation of financial instruments must keep pace with changes in the relevant accounting standards.
We have to act in a determined way to deliver our 2% target Inflation has reached levels that we have not seen in decades in the United States and in the euro area. HICP inflation in the euro area was 10.0% in September 2022 and excluding energy and food reached 4.8%. We decided to frontload our monetary policy normalization in September with a 75bp increase in all our policy rates, taking them into positive territory for the first time since July 2012. When anyone acts fast, there are always people to ask whether they are overreacting or could wait and move more slowly. For some in Europe, there would be two arguments in favour of inaction or at least caution: namely the supply-side origin of the shock and the risk of a recession. Let me tell why I don’t think such fears should derail us from our normalisation course. On the nature of the inflation shock, there is obviously a significant energy and supply component in the current euro area inflation, reflecting pandemic-related supply 2  Page 3 sur 14  disruptions in 2021, and on top of the sharp increase in energy prices this year after Russia’s invasion of Ukraine. When central banks are faced with temporary supply shocks, they are often supposed to “look through” the immediate effect and extend the horizon over which inflation returns to target if necessary. But due to pressures along the pricing chain, inflation has not only heightened, it has broadened into industrial goods and services.

But in conclusion, let me touch a sensitive coordination issue between various monetary policies. Given the financial importance of the dollar, and the need for the Fed to tighten decisively in order to reach its own price stability objective, other Central banks could be exposed to a dilemma. This is not exactly the one put forward by Helene Rey in her famous 2013 paper vi, but a delicate trade- off as a consequence of free capital movements: - Some Central banks already fighting inflationary pressures could be at risk of overtightening to avoid an excessive slippage of their currency. This would be mainly but not exclusively the case for emerging markets, and justifies the fear expressed by 11  Page 12 sur 14  M.Obstfeldvii and others of an excessive global monetary tightening. The IMF judges nevertheless that we are not there yet, and I agree. -Others would see a significant fall of their currency (versus the dollar) if they seek to maintain accommodative domestic monetary conditions. This could explain the recent intervention by Japanese authorities in favour of the yen. As said earlier, I think that the ECB should and can run its own monetary course. Not only today, but as a structural consequence of the significant weight of the euro area in the world economy: I stressed it four years ago in our IMF Bali meetingsviii. Obviously the exchange rate matters for our inflation outlook: we don’t target it, but we look at it closely.
Average MPC vote includes both decisions on Bank Rate and QE, with every extra £ of asset purchases (gilts and corporate bonds) treated as equivalent to a 25bp cut in Bank Rate (see Joyce, Tong and Woods, 2011). Six years ago, the MPC recognised that past should not be prologue. The MPC was pretty certain there was a large amount of slack, although it had questions over how much productive capacity had been destroyed following the crisis; how quickly productivity growth would recover; and whether labour supply would change in the wake of reforms and a heavy burden of household debt. Such uncertainties about supply meant that knowing what was happening to demand was no longer sufficient for gauging the appropriate policy response. That is why the Committee provided forward guidance that explicitly linked any potential change in interest rates to the unemployment rate – a clear and widely understood indicator of the degree of slack. The message the Committee gave UK households and businesses was simple: the MPC would not even think about tightening policy at least until the unemployment rate had fallen below 7%, consistent with the creation of around three quarter of a million jobs. What we – and others – learnt as the recovery progressed was that the UK economy had substantially more spare capacity than previously thought. The MPC could be patient.

10  BIS Review 99/2010  Figure 7  EES: Inflation expectations  CPI inflation (*)  (annual change, percent)  (percent)  10  10  7  7  8  8  6  6  6  6  5  5  4  4  4  4  2  2  0  0  3  3  -2  -2  2  2  -4  -4  1  1  03  05  07  09  11  02  04 06 08 10 At December 2010 In one year In two years  March 2010 IPoM June 2010 IPoM (*) Gray area: as from second quarter 2010, forecast. Sources: Central Bank of Chile and National Statistics Bureau (INE). Figure 8 MPR and forward curve  (percent)  9 8 7 6 5 4 3 2 1 0  07  Jul. 08  Jul. 09  EES June 2010 Forward, March 2010 IPoM MPR  Jul. 10  Jul. 11  Jul. 12  9 8 7 6 5 4 3 2 1 0  EES March 2010 Forward, June 2010 IPoM EOF, first half of June  Source: Central Bank of Chile. BIS Review 99/2010  11
Even if the modal forecast reverts to the inflation target, the distribution around that forecast associated with potential second round effects may also justify action. This was part of the rationale for the MPC’s February 2023 decision. 12. To understand how this shock was seen in real time, see the discussion in Box B of the MPC’s Monetary Policy Report - May 2022, entitled ‘How will the Russian invasion of Ukraine affect the UK economy?’ 13. See Pill. H. (2022). ‘Returning inflation to target,’ speech by Huw Pill at Kings College, London, 6 July. 14. It is important to note that the military threat to Ukraine was foreseen by the time of the Russian invasion. However, (1) it would have to have been clear much earlier – at least a year earlier – if monetary policy were to be able to contain the initial inflationary impulse from higher energy prices; and (2) as the military threat grew, market pricing of natural gas futures rose. It is these futures prices that feed into the setting of UK household utility bills, so the relevant surprise was the earlier one in commodity markets, which was only visible to the MPC in real time. 15. This transmission occurred via the OfGEM mechanism for setting the ‘price cap’ on UK household utility bills, as explained here ‘Energy price cap explained,’ OfGEM  . 16.

Then, just as these bottlenecks were easing as the pandemic receded, UK energy prices rose dramatically following the Russian invasion of Ukraine and the resulting dramatic increase in wholesale European natural gas prices. And now, just as those wholesale gas prices have fallen substantially in recent months, we are seeing another inflationary impulse coming from rises in food prices driven, at least in part, by unexpectedly weak crop yields in southern Europe and north Africa. [10] Understood in this way, the persistence of UK inflation is largely a manifestation of ‘bad luck’ – a ‘series of unfortunate events’. It reflects a sequence of fundamentally transitory shocks – each of which monetary policy can do little about, for reasons I have already explained – that have cumulated through time into a more long-lasting elevation of headline inflation. There is much truth in that narrative. But we have to guard against complacency in interpreting recent inflation developments in this way. I recognise that this is potentially both a self-serving and an incomplete view of recent inflation developments in the UK. For one thing, we need to assess whether the surprises we have been confronted with over recent years could have been anticipated by better analysis and research: for example, could we have forecast the vulnerabilities in global supply chains once the pandemic had struck? Or could we have foreseen the dynamics in food prices given agricultural commodity prices?
Essentially the monetary policy maker does just what he would do if there were no banking friction present, with the impact of that friction being offset through the macroprudential instrument. Similar results obtain in the face of a financial “panic” (middle panel), which leads to a lower volume of deposits and loans for a given level of bank capital. In this case, it is inefficient for output or physical capital to fall, so policy needs to counteract the tightening in credit conditions in order to stabilise inflation, output and capital. The viable path of leverage is lower because of the tightening of the incentive compatibility constraint, so bank capital needs to be higher to sustain investment. If this has to be done through monetary policy alone, the nominal interest rate needs to be cut sharply initially in order to widen the lending margin and build up the necessary extra bank capital. When the macro-prudential instrument is also available, the necessary increase in bank capital can be achieved immediately using the bank levy/subsidy, leaving physical capital, output and inflation unaffected, again obviating the need for monetary policy to react. The bottom panel of Chart 8 shows the response to a persistent positive mark-up shock. Unless counteracted, the immediate impact of this shock is to push up inflation and to reduce output, profits and the price of capital.

In all eight jurisdictions, the coefficient on the lagged level (δ) is numerically quite large, and especially so in the case of the euro area. None, though, are statistically significant at conventional levels. The tests are, however, likely to be of low power on such short samples. In order to increase the power of the test, the final row of the Table therefore shows the result when of a pooled regression, with the coefficient δ constrained to be the same across countries (the other coefficients are allowed to differ); the euro area is omitted from this regression in order to create a balanced panel. Unsurprisingly, the coefficient δ is close to its average across the individual country regressions. But the appropriately adjusted test statistic (see Levin, Lin and Chu, 2002) on δ is now highly statistically significant, strongly suggesting that collectively the price-level series are trend-, rather than difference-, stationary. There are a number of possible explanations for this apparent trend stationarity of the price level during the inflation-targeting period. First, it may be just an artefact of the particularly  9  I am grateful to Lars Svensson for drawing my attention to this fact. 10  To cater for drift insofar as prices have not, on average, risen at the supposed target rate. BIS Review 111/2010  15  benign environment obtaining for much of the sample period. More data from less benign times may overturn this result, so it will be worth revisiting in the future.