samchain/econo-pairs-v1 huggingface dataset:
44  For MPC, this is a quarterly Inflation Report; for FPC, a semi-annual Financial Stability Report; for the PRA, an Annual Report. 6  BIS central bankers’ speeches  policy regime is one of “constrained discretion”. 45 Each of these constraints can, in turn, be seen as an institutional response to the behavioural biases discussed earlier. Behavioural biases in policy So let me now link these institutional features to each of the behavioural biases. And let me also try to provide some evidence on how successful these features have been in leaning against these biases. With elements of this policy framework still fledgling, it is too early to reach definitive conclusions on some of its features. Preference biases The policy frameworks of the MPC, FPC and PRA Board share the feature that targets are set ex-ante in legislation by Parliament acting on behalf of society. The policy mandates of the MPC, FPC and PRA are those of the principal (society), not the agent (the Bank). The Bank is not setting its own exams. Nor, ex post, is the Bank marking its own exams. For example, if the MPC fails to meet its 2% inflation target by one percentage point in either direction, it is required to write an open letter to the Chancellor, setting out why this happened and how the MPC intends to respond in returning inflation to target. And the Bank’s regular policy reports set out the MPC, FPC and PRA’s intended actions and are subject to Parliamentary scrutiny.

Economic and financial pride had come before a momentous fall. Nemesis had duly followed hubris. 2 It was the coldest of comforts that this cognitive lapse was shared by the whole economic and policy-making profession. Clinical diagnoses of this failure will continue for some time. Was this an example of the intoxicating effect of power, the anaesthetising effect of success, or the humbling effect of uncertainty? I do not know. But if nothing else, this episode underlines the importance of cognitive constraints on decision-making when assessing the robustness of policy. Over recent years, there has been a huge amount of research on how human decisionmaking is affected by various cognitive biases. 3 Behavioural economics, the fusion of psychology and economics, has come of age. There has also been a huge amount of research over many years on central bank decision-making. 4 Yet the link between the two – the psychology of central banking – has to date been largely unexplored territory. 5 I want to engage in a little amateur psychology by beginning to explore that terrain. Psychology tells us that behavioural biases, because they are neurologically hard-wired, are often difficult to detect: they are unconscious biases. Simply recognising the cognitive constraints on decision-making is thus a first step towards making policy robust to them. So too is institutional design.
William C Dudley: Securing the recovery and building for the future Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the United States Military Academy at West Point, West Point, New York, 17 November 2011. *  *  *  I am honored to have the opportunity to speak to you today in the hallowed halls of West Point. I do not need to tell anyone here of the long and distinguished tradition of this institution and the U.S. Army. I believe that the U.S. military is one of our nation’s greatest institutions and a living demonstration of the best of America. Your example of national service inspires us all to live up to our duty to do all we can to advance the national interest. I am the president of the Federal Reserve Bank of New York, part of the Federal Reserve System that serves as our nation’s central bank. In this capacity I am also vice chairman of the Federal Open Market Committee (FOMC), the Federal Reserve committee that sets interest rates and makes other decisions about monetary policy. This committee sets policy to advance the mandate given to us by Congress: to promote maximum employment and price stability. In the support of these objectives I and my colleagues must also guard as best we can against threats to financial stability, because credit is the lifeblood of the economy.

Don’t take this debate for disagreement about the broader goal: I am convinced that all FOMC members are committed to taking whatever steps they deem would help advance the dual mandate of price stability and full employment. For my own part, I am deeply unhappy with the current forecast of prolonged high unemployment, and will continue to review whether there is more that we could do that would bring more benefit than cost. Monetary policy must do its part. But there is a strong case for complementary policy actions because such actions can help secure better outcomes than can be achieved through monetary policy alone. If we are to achieve the best possible recovery and build for the future, we will also need ongoing efforts across four broad fronts: financial stability, housing policy, fiscal policy and structural adjustment to foster more sustainable U.S. growth and a more balanced global economy. Ongoing attention to financial stability and the reform and repair of the financial system is essential to support recovery. We need to make sure this proceeds in a manner that is not pro-cyclical, and for this reason we are, for instance, phasing in new capital and liquidity standards, and monitoring how institutions adjust to the new requirements. Nonetheless, the financial system must be healthy to support sustained access to credit. If we want those households and businesses with low levels of debt to reduce precautionary saving, we need to restore their confidence in the financial system.
Analytically, it is useful to distinguish between procyclicality of capital and procyclicality of leverage. Procyclicality of capital is easy to understand. When conditions are good, financial institutions are profitable and their strong capital base allows them to take larger positions in the markets. This mechanism has been amplified by mark to market accounting 4 . In a mark to market environment, an increase, for instance, in asset prices quickly translates into stronger capital for financial institutions. This, in turn, triggers additional demand for assets and a further increase in their prices. This kind of "inverted demand curve", where demand increases with prices, potentially creates powerful feed back loops. Procyclicality in leverage is more subtle. It has been shown that financial institutions' balance sheets expand and contract with the economic cycle 5 . Many different mechanisms are at work: •  First, risk management techniques: tools used to measure and value risk, such as VaR are naturally and strongly procyclical, especially when constructed with very short data series. Risk management practices hardwired to valuations (such as margin calls) strongly amplify fluctuations in leverage and may lead to fire sales and "one sided" markets. •  Another mechanism 6 relates to the dynamics of short term money markets : when liquidity is perceived as abundant, there is strong incentive for dealer-brokers to engage in maturity transformation through strongly leveraged positions. •  Finally, risk appetite itself moves along the economic cycle. Animal spirits obviously play a role.

In the afternoon we will feature Sujit Kapadia and Prasanna Gai with an analysis of financial contagion using a network model. In addition, there will be two panels that will review financial risk management with two important nuances: its incidence in emerging economies on one hand, and on systemically significant financial institutions, on the other. The economists invited to these panels include Michael Bordo, Paul McCulley, Martín Redrado, José Darío Uribe, Martin Wolf and Roberto Zahler. Finally, Charles Calomiris will share with us his vision on the current crisis and the implications of the works presented in this conference. Two intense days that hold in store enormous technical content that, without any doubt, will make a fundamental contribution to our future view of macroeconomic and financial phenomena. I want to finish by thanking Rodrigo Alfaro, Dale Gray and Jorge Selaive for their work in putting together this conference. Also Mauricio Calani, Mónica Correa and Soledad Gallardo, and our Institutional Affairs Management for their help in organizing this event. I also want to thank the many authors and discussants of the papers for their dedication to preparing their valuable presentations. To all of you, dear participants, I wish you two days of fruitful discussion. Thank you. BIS Review 134/2008  3
For central banks and other economic forecasters, the challenge will be to attempt to make the best assessment possible of the manner in which potential output and growth may be impacted by both the crisis and the regulations resulting from it. For the authorities that are to design the regulations, the challenge will lie in finding an appropriate balance: on one hand, the regulations will need to be sufficient to reduce the risk of financial crises – which can cause potential output to fall. However, on the other hand, they should not be so comprehensive as to impede the financial sector unnecessarily, thus risking dampening potential growth. In other words, it is a matter of finding just the right level of regulation. Figure 5 Potential output with and without crises Potential output Without regulations, with crises With regulations, without crises  Time  Somewhat simplified, it could be said that this is a matter of making a choice between two development paths for potential output (Figure 5). In one, development is interrupted now and again by crises, during which potential output falls, but between these, growth is relatively strong. In the other, development is even, but growth may be slightly lower than is the case between crises in the first development path. It is not obvious which development provides the best welfare effects over the long term, but it is clear that general opinion at present is that we should attempt to reduce the risk of crises and abrupt halts.

Other elements were:   fiscal policy – the management of public spending and revenues – was oriented towards full employment    credit regulation within limits specified in a separate credit budget    channelling of loans through state banks    regulation of cross-border capital movements    low nominal interest rates stipulated by the government authorities    a fixed, though adjustable, krone exchange rate    use of price regulation    an active business policy through state ownership and state grants and subsidies. The proposal to establish an incomes policy council did not receive support. There was just too much state control and coordination. Today, 40 years later, little remains of the management system that was built after the war. The structure was not sufficiently robust. Detailed management and regulation of the economy was not able to deliver sustainable growth and welfare. On the contrary, the result was poor efficiency and wide fluctuations in the Norwegian economy in the 1970s and 1980s. The wide fluctuations culminated in a credit boom in the mid-1980s, which was followed by a banking crisis and a deep recession with high unemployment at the end of 1980s and the beginning of the 1990s. The way the economy is organised has changed considerably over the past 20–25 years. It would therefore be incorrect to say that one economic model has applied to Norway through the postwar period.
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.

Fiscal policy, too, has played a very big part, helping to spread the cost of this large shock over time, because otherwise the cost to the public and the country would be unbearable. When I step back from all of this, I think the strong logic is that we are using the tools of counter-cyclical policy, consistent with the remit in the Bank’s case, to support the economy as best as possible through this unprecedented shock. But I sometimes hear that the Bank has flouted the rules and thereby damaged its independence, by purchasing government debt and lowering the government’s cost of borrowing. In many ways, I am glad that central bank independence is being vigilantly scrutinised. This is an important aspect of the Bank’s public accountability. But I’m sorry to have to be blunt, I’m afraid these arguments are entirely without merit. In a world where the Government has to manage the task of spreading the cost of the pandemic which would otherwise fall on individuals at great cost to them, and the central bank is acting counter-cyclically to support demand in the economy consistent with its inflation target, it is hardly surprising, and indeed consistent, that the Government should be able to benefit from those financing conditions. If the situation was otherwise, and the central bank acted to prevent counter-cyclical policy taking effect, we would be abandoning the remit on which our operational independence is based. Put another way, to be independent does not mean to be disorganised.
On the domestic front, the risks associated with the political situation in Catalonia remain. The baseline scenario of our December projections included the negative effects of the increase in uncertainty relating to political tensions. Specifically, on that occasion it was considered that the scope of the events already observed would be relatively limited and temporary, albeit not negligible. So far, the information available appears to confirm that recent economic developments are not far removed from the scenario anticipated, with effects that appear to have been confined to Catalonia. Specifically, since summer 2017, the performance of the Catalonian economy appears to have been relatively worse than that of the rest of Spain in terms of the figures, for example, on domestic spending and tourism. Elsewhere, the indicators measuring the degree of economic and financial uncertainty suggest a reduction in this variable. The incidence of this source of risk will depend on the intensity and persistence of the tensions. An easing in these tensions might lead to higher growth than that considered in our December projections. Conversely, a hypothetical rebound in tensions might lead to an increase in uncertainty resulting in a more pronounced impact on agents’ spending decisions. Conclusions I shall now conclude, setting out once more our main challenges. As I said, the resilience of the Spanish economy to future adverse shocks has increased following the crisis. But we cannot be complacent.

The euro area-wide unemployment rate has fallen to 8.7%, compared with levels close to 13% at the height of the crisis, although there are substantial cross-country differences, ranging from an unemployment rate below 4% in Germany to 20% in Greece and 16.5% in Spain. Moreover, a balanced pattern of economic growth can be seen. Adding more recently to the momentum of private consumption, the sole engine of growth of the start of the recovery, has been the dynamism of business investment. Low financing costs, the sound performance of final demand and high capacity utilisation are enabling investment to pick up to pre-crisis levels. However, factors persist that might restrict medium-term investment projects, including most notably low potential growth expectations, the adjustment of balance sheets and the correction of high corporate debt levels still under way, and the problems that are creating political uncertainty. Euro area exports, boosted by more buoyant global trade, are also contributing to the momentum of activity. And this despite the notable appreciation of the euro since last spring. Undoubtedly, a significant factor underpinning the recovery has been the maintenance of an expansionary monetary policy, which has allowed financing conditions to be relaxed, contributing to the upholding of both private consumption and the recovery in investment. Specifically, estimates by the Banco de España suggest that the series of monetary policy measures adopted since mid-2014 might account for close to half of the nominal GDP growth in the euro area from 2015 to 2017.
Also, as the IMF has recently indicated, it would be desirable to assess the suitability of bail-in strategies in the event of systemic crises, given their potentially adverse effects on the financial system as a whole, which may ultimately raise social losses and the cost to the taxpayer. In order to make further progress in reducing the risk of financial fragmentation within the euro area, it is necessary to boost private-sector risk-sharing channels, such as the credit and capital market channels, so that they work alongside the public-sector risk-sharing mechanisms. This requires, first, removing obstacles to the creation in the medium term of genuine pan-European retail banks. In particular, a single deposit insurance fund needs to be created, the euro area needs to be treated as a single jurisdiction for regulatory purposes and, above all, market pressure needs to reach broad segments of the European banking system, such as public-sector banks, cooperative banks and savings banks. Second, progress needs to be made on the various Capital Markets Union initiatives. The implementation of this project should lead to more efficient and integrated capital markets, enabling European businesses to diversify and broaden their sources of funding and to reduce their excessive dependence on bank finance. However, this is a complex objective that requires action on various fronts, including the development of market infrastructures, the review and harmonisation of market regulation and supervision and of insolvency procedures, and the elimination of the bias in favour of debt financing in some countries’ tax systems.

Another particularly relevant case at the present juncture is Brexit, which may have very significant effects on the UK and EU economies. Depending on the future framework for relations between the EU and the United Kingdom, and whether or not the departure from the EU takes place in an orderly manner, the latest estimates, published by the Bank of England just a few days ago, range from long-term GDP losses for the United Kingdom of around 2% of GDP in the case of an orderly exit and favourable future agreement, to declines of around 10% of GDP if there is no agreement and the exit is disruptive and disorderly. The costs for the EU would be lower, although in the event of a hard Brexit the impact could be significant for those countries with closer trade and financial ties with the United Kingdom, such as Ireland, Belgium and the Netherlands. At the same time, the evidence suggests that greater protectionism raises the vulnerability of economies to domestic adverse shocks. This is because international trade allows producers to diversify their business and cope with cyclical fluctuations in domestic demand. This diversification mechanism is even more important in crisis periods, as seen in Spain, where businesses facing severe contractions in domestic demand during the most recessionary phases of the last crisis found an escape valve in the form of exports that enabled them to maintain their activity and limit job losses.
If the present trend continues, cash could actually be phased out as a means of payment in a few years, as many banks and a growing number of retailers no longer offer services involving cash. Sweden is a world leader in developing electronic means of payment. This is positive. But, at the same time, the public sector in a wide sense needs to ensure that 1 Florian Maican and Matilda Orth (Ekonomisk debatt 1/2018) describe how measures of productivity are  adapted for the manufacturing industry and how service industries, which are growing in Sweden, require other measures of productivity. 2 [5]  everybody who lives in Sweden will continue to have access to secure and efficient payment services. Consequently, over the last year, the Riksbank has prioritised the analysis and strategic development of the payment market. The Riksbank has also proposed that, via legislation, Sveriges Riksdag, the Swedish parliament, should clarify the banks’ responsibilities for supplying cash. 2  Financial crises, technology and competition have restrained wage increases In a city like Södertälje, with, for example, the vehicle manufacturer Scania, the pharmaceutical manufacturer AstraZeneca and the Port of Södertälje, there is long experience of working in the global economy and of technological shifts. For you, change is nothing new. If we zoom out to the entire Swedish economy, we have also been quite good, as a country, at managing change. But let me start in the present day, where we can see that the international economy is growing increasingly strong.

In our monetary policy assignment of maintaining price stability in Swedish kronor, specified as inflation of around 2 per cent, we need to understand not only cyclical developments but also structural transformations in the economy. This knowledge forms a precondition if we are to be able to make good forecasts and calibrate a well-balanced monetary policy, thereby fulfilling our mandatory task. To make good forecasts, we need models, and models assume that economic relationships are stable. It therefore becomes complicated when structural changes delay or even transform old relationships. If important structural changes have occurred, they turn up as so-called shocks in the models. For example, new and better working methods should entail a positive shock in productivity. Another structural change, for example increased e-commerce, means that competition increases, putting pressure on companies’ profit margins. However, when data on productivity and companies’ profit margins is studied, it is difficult to observe larger changes. Productivity growth in recent years cannot be described as remarkably high. 1 In turn, this has an effect on wage development, which I shall return to. My point, however, is that technological shifts do not necessarily change the way the economy works. But it is nevertheless clear that technological breakthroughs can push forward changes in what have historically been fairly stable operations and open them up for new participants. For example, technological developments in society have contributed to the use of cash, the money the Riksbank offers society, going into decline.