samchain/econo-pairs-v1 huggingface dataset:
Tightening monetary policy after a long period of very low rates has the potential to reveal further financial vulnerabilities. We need to consider how declining asset and collateral values flow through the system, including potential risks that may arise as leverage is unwound. But having built up resilience in the system ahead of time should prove a smart investment. Reforms since the GFC mean that the core of the financial system, especially banks, is much safer. And so far banks and insurers have shown themselves to be resilient, notwithstanding the sharp increase in interest rates. The same can be said of households and businesses. Rising rates will affect house prices, but the FPC has helped to limit risks from household debt through our mortgage market tools. And by stress testing banks against major increases in corporate defaults we have reduced the risk of the banking system amplifying distress in the corporate sector. In fact we have been including ‘rates up’ scenarios in our stress tests for many years, giving us a forward-looking view of the system’s resilience to increases in interest rates and so the ability to build extra resilience in advance of higher rates materialising. All of this means that while the FPC stays on the case for financial stability, the MPC can get on with its job of ensuring monetary stability. Of course the LDI episode highlights the need for vigilance. This is particularly true for marketbased finance – financial institutions outside the banking system.

Given these interactions – and with monetary and financial stability two sides of the same coin – why have two separate committees? Indeed some have suggested we need one committee, to manage trade-offs[15]. If there are material trade-offs between objectives then there’s a good case for making joint decisions about them. Decisions made based on one in isolation would not account for ‘spillovers’ to the other, leading to less effective policy overall. But there are other views. For example, the ‘modified Jackson Hole Consensus’ (reflecting a rather scenic annual conference held in the US) holds that a separate financial stability policymaker – with an independent set of tools – should be responsible for financial stability, allowing monetary policy to focus on price stability[16]. In my view, this approach works well because although monetary policy and financial stability interact in complex ways, they are in the end complementary. This means there typically aren’t  Page 5  major trade-offs between the two – both policymakers will be pushing in the same direction. I think this is borne out by our practical experience. If the case for a single committee is not that strong given potential trade-offs typically involved, there are two practical reasons why it is desirable to have two separate committees: accountability and expertise. With independence comes a need to ensure that bodies like the MPC and FPC are held accountable for their performance. This is much easier when their objectives are clearly defined. Two separate committees makes this easier.
Chart 6: The level of supply remains weaker than its pre-pandemic level GDP and estimated potential supply (a)  (a) Diamonds are projections for 2023 Q1, 2024 Q1, 2025 Q1 and 2026 Q1. Diamonds for GDP show MPC projections. GDP in 2022 Q4 is a Bank staff projection incorporating official data to November 2022. Data include the backcast for GDP. Estimated potential supply is derived using the MPC’s projection for the level of GDP and the level of excess demand/supply. Both GDP and estimated potential supply are indexed to GDP in 2019 Q4. Source: ONS and Bank Calculations. Chart 6, taken from the February Monetary Policy Report, shows that the Monetary Policy Committee’s estimated level of potential supply has not yet regained its pre-pandemic level. It illustrates that the Committee based its most recent forecast of the economy on the key judgement that the level would only recover very gradually. On our latest estimates, the growth rate of the potential of the UK economy – the supply side – is probably now around 1% per annum. This compares to a typical growth rate in the decade leading up to the financial crisis of nearly 2¾%. To understand these movements in supply, we can dive into its constituent parts. Supply depends on the amount of both labour and capital in the economy. Most simply, it can be thought of as the amount of labour available in the economy and the productivity of that labour in producing goods and services.

Recent developments in money market structure Since 2015, my staff and I have focused on four changes in money market structure that some observers believed could have had an impact on the implementation or transmission of monetary policy. I’ll discuss each of these in turn. To begin with, we are now firmly off the zero lower bound. After seven years at very low levels, the federal funds rate is now trading at 91 basis points. As shown in (Figure 2), the distribution of overnight federal funds activity is now quite distant from zero, in comparison to the period before liftoff. (Figure 3) shows a similar presentation for the triparty repo market, similarly revealing that traded rates are now consistently well above the zero bound and largely above or at the ON RRP offer rate. Certain features of the financial system likely provide support to interest rates near zero. These include the availability of physical cash and a behavioral aversion by some money market investors to investing at negative rates. They also encompass certain unique features of money markets in the United States, such as legal and regulatory incentives applicable to money market funds and the inability of the Federal Reserve to remunerate deposits held by governmentsponsored enterprises.
Some people wonder why don’t we simply make the Charter part of the HKMA’s regulatory requirements for banks given the importance of fair customer treatment? My reply to this is that: banks have to deal with tens of thousands of customers every day to provide a great variety of services and conduct countless transactions. While imposition of regulatory rules would bring about some effects, no external rules could possibly be all-pervasive, more difficult still about transforming the corporate culture or long-standing values in workplace. Fair treatment of customers ought to be firmly embedded in the corporate culture of banks that all personnel – from board of directors, chief executives, senior management, to frontline employees – will accept, defend and uphold treating their customers fairly as a guiding principle. Banks’ incentive mechanism must also promote and support this culture in every aspect of the banks’ operations. BIS central bankers’ speeches  1  6. Bank customers, as consumers of various types of bank products and services, should receive appropriate protection. While banks should treat their customers fairly, the latter should also be responsible and smart. The most basic requirement is that customers should try their best to understand the products and services provided by banks, including credit cards, personal loans, home mortgages and wealth management products, their relevant risks, costs and expenses, and whether the products and services are suitable for them.

We also need to make supervisory colleges more effective, including: •  Constructing the colleges with the appropriate members reflecting the key jurisdictions based on the scale or criticality of activities;  •  Ensuring robust dialogue between supervisors and firms in college settings;  •  Providing direct and candid feedback to firms and supervisors following from the interactions; and  •  Agreeing on key messages to firms or areas of supervisory focus to ensure consistency across home and host supervisors. I don’t mean to suggest that coordination isn’t underway already – because there is – but there are many reasons to be hopeful that even more progress will be made in the near-term. •  There are efforts such as those of the Financial Stability Board (FSB) and the Senior Supervisors Group (SSG) to promote enhanced information sharing and collaboration among supervisors. •  I’m particularly excited about the recent opening of the BIS’s Data Hub – a move designed to provide a more efficient and practical mechanism for supervisors – and eventually central banks and other relevant bodies – to share information on global banks’ activities and exposures. 3. AML/BSA compliance  A third area I wanted to touch on is one that I raised last year – AML/BSA compliance.
Given the scale of the challenges facing us, it is vital that the economic policy response be sufficiently ambitious and resolute, so as to speed the adjustment of the accumulated imbalances and to lay the foundations for a more stable and flexible economy. This would not only be to the benefit of the Spanish economy; it is also essential for the very stability of the common European project. On this economic policy response will hinge the strength of the recovery, which in Spain’s case has hitherto been very incipient and very reliant on temporary stimuli, that will tend to peter out in the short run. Even without the high degree of uncertainty surrounding us in recent weeks, the recovery would only be gradual and would take some time to attain a pace of expansion sufficient to generate employment, which underscores the need to act decisively to avoid prolonged low growth. BIS Review 92/2010  1  The Annual Report of the Banco de España addresses the current situation of and outlook for the Spanish economy in great detail. Accordingly, given the limited time for my testimony, I shall focus on three issues that are essential in my view in order to be able to exit the current situation and bring about a rapid return to sustained growth: fiscal consolidation; the steps that must be taken to set in place an efficient labour market that rapidly promotes job creation; and, lastly, the restructuring of the financial system, where substantial progress has been made in recent weeks.

Jean-Pierre Roth: Switzerland - a financial centre in the heart of the euro area Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the Belgian Financial Forum, Brussels, 16 February 2004. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  Switzerland is not a fortress. In relation to the rest of Europe in particular, it is an economy that is very much open to mutual exchanges - notably with regard to trade and finance. It is not by chance that Switzerland has become a major financial centre. This can be ascribed to a number of positive factors, including specialist knowledge, a long-established banking tradition, the quality of the financial infrastructure, and customers’ confidence in the soundness of the country’s financial institutions. Switzerland’s political stability, its high level of savings and the international standing of the Swiss franc have also enhanced the appeal of its financial system. Increasingly, however, Switzerland is not alone in offering such advantages. Moreover, the Swiss financial centre - like all the others - has to face the challenges of globalisation and the fight against financial crime. As banking secrecy does not afford any protection to funds of dubious origin, the Swiss authorities are able to combat money-laundering with a reasonable degree of efficacy. In this area, Switzerland has implemented measures that have received international recognition.
This was how I felt, anyway, when I turned 50 last year, although others may scoff if they like. On the other hand, institutions like central banks are not mortal individuals with a limited lifespan, and for them, birthdays and anniversaries are cairns marking a path with no obvious endpoint – a path that must point to the future, and to progress. The past only has meaning insofar as it illuminates the road to the future. The inflation target that we observe now is a function of much more than merely keeping inflation at bay. The policy centres on setting the right ground rules between democratically elected representatives, on the one hand, and experts or officials, on the other. And it rests on the foundations of a simple division of labour: elected representatives define monetary policy objectives, and the Central Bank has the independent power to execute policy in the pursuit of those objectives. In this context, the Central Bank can be viewed as an independent contractor engaged by the people of Iceland. The ground rules of inflation targeting have proven to be good ones for democratic countries, as inflation targeting demands transparency and public accountability, in line with the precepts governing an open society. Yes, inflation-targeting central banks work on a public stage and must be able to participate in public discourse in a dedicated and resolute way. In the final analysis, each is judged according to their actions.

In 2020, the Central Bank sold foreign currency in the amount of 144 b.kr. in order to prevent lower interest rates from causing excessive, unwarranted depreciation of the króna. It is also possible to imagine that, in the future, the Central Bank could absorb excess capital inflows into Iceland if this should prove necessary. In the future, the Central Bank will need to use its balance sheet to ensure effective monetary policy transmission and ward off potential financial side effects. Nevertheless, in the long run, the future of monetary policy lies in using a greater number of policy instruments and in coordination with macroprudential policy and financial supervision. Here lie the opportunities for Iceland’s tiny currency area. Honoured guests: Yet another anniversary is uppermost in my mind today: the one-year anniversary of the merger between the Central Bank and the Financial Supervisory Authority – the reunification, we could say. The Financial Supervisory Authority was once part of the Central Bank, called the Banking Supervision Department. But in 1998 the banking supervision function was carved out of the 3/5  BIS central bankers' speeches  Bank, right around the time the two State-owned banks were being prepared for privatisation.
If, on the other hand, it thinks there’s going to be an imminent resolution (high q, low E[T]), there is every incentive to wait until that actually happens. In the meantime only extremely high-return projects would get the go-ahead. One general implication of this is that empirical estimates of the impact of uncertainty on investment, which generally assume that the effect is purely contemporaneous – investment today is a function solely of uncertainty today – are (strictly speaking) an over-simplification. At least in principle it will also depend on how long businesses expect any uncertainty to endure: the shorter the expected duration the greater the predicted impact. I doubt this would ever be straightforward to test empirically. As hard as it is to measure uncertainty very precisely it’s obviously harder to gauge accurately how long people expect that uncertainty to last. But the distinction may nonetheless matter on occasion. One such occasion is when there is thought to be a particular date at which important information is likely to be revealed. If so, then [3] suggests that the effect of uncertainty on investment should intensify the closer  8  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  8  one gets to that point. As the remaining time shortens the perceived cost of waiting for news falls with it.

And it is this – the chance of avoiding the downside outcomes – that gives the option in [1] its value. Ben Bernanke, who did much to bring these issues to the attention of economists in a ground-breaking paper in 1983, called this the “Bad News principle”. 4 What I want to do now is construct a very simple example that makes this point a little more precisely. And I’ll do so in a way that allows us to think too about the effects of the perceived duration of uncertainty: does it make a difference if the firm expects things to be resolved soon or instead to endure for a long time? Though the example is highly stylised I think it can help shed some light on the impact of the ongoing uncertainty about Brexit. We want to keep things as simple as possible, so in this example the only uncertainty surrounds a discrete event, at some point in the future, that has a lasting effect on the profitability of a particular investment project. Until the uncertainty is resolved (i.e. until the event occurs) the project yields a fixed rate of return R and can be financed at a known rate ρ. When the event does occur the outcome is either good, in which case the project makes a proportionate gain of G (in expected-present-value terms), or a bad one, resulting in a present-value loss on the project of L > 0.
A shift in labor force from agricultural to non-agricultural sectors has been experienced in many developing countries. Rapid productivity gains observed throughout the post-war period, have been slowed in the last decade. Moreover, the recent drought that hit most parts of the world created a supply crisis, aggravating the upward trend in food prices. On the demand side the huge jump in energy prices and rising environmental and political concerns force developed countries to seek alternative energy sources. The production and  BIS Review 109/2008  1  consumption of bio-fuels increased rapidly, particularly after the European Parliament adopted the Common Agricultural Policy reform in 2003 and the US Senate approved the Energy Policy Act of 2005. As a result, prices for commonly used bio-fuel crops, such as corn, wheat, sugar cane and canola, started to climb. During the 2004-2005 period, only 7 percent of total corn production was used to produce bio-fuel, but this share is expected to increase to 17 in 2008 and 31 percent in and 2011. The increase in purchasing power of households in fast growing and emerging economies with large populations also put strong demand pressure on international food prices. What is the contribution of these factors in food price inflation, especially exogenous ones such as the adverse weather conditions? What is the extent of the role played by factors? Is it possible to control domestic food prices through monetary policies?

Some advanced economies are on the brink of recession. Dear Guests, This is not the first time the world had experienced supply shocks in commodities. But, these shocks were usually in energy prices and consequently, they had affected advanced economies more severely than the developing ones. The rise in food prices, on the other hand, has led to different repercussions. In comparison to the industrialized world, food expenditures in developing countries constitute a larger share in the basket of consumer prices. That is why increases in food prices typically lead to higher increases in the inflation rates of developing countries. Food prices have been rising dramatically, particularly since mid-2007. At one point, the inflation of wheat prices reached triple digits. Similar levels were observed in corn, soybean, and rice prices. According to estimates of the International Monetary Fund, food inflation accounted for 44 percent of global inflation in 2007 – up from 27 percent in 2006. In Asian countries, this figure reaches to 68 percent. Food inflation is expected to contribute almost two thirds of increase in inflation rates in Brazil, Chile and Argentina. Despite some relief in the most recent period, they are expected to stay elevated in the near future. There are both supply and demand pressures behind this dramatic surge in food prices. On the supply side the amount of resources allocated for agricultural production has been stagnant for a while due to rapid urbanization and industrialization.
Second, over the past decade, inflation in the United States has been below our 2 percent longerrun target most of the time, and a number of measures of inflation expectations have drifted down in recent years.3 It is important to note that these first two observations are closely connected, as emphasized in the paper with Thomas Mertens that I presented at last year’s Hoover conference. In a world of 1/3  BIS central bankers' speeches  low r-star and a lower bound on nominal interest rates, a standard inflation targeting approach can lead to inflation and inflation expectations that are anchored below the targeted level.4 Third, during the long economic recovery following the 2007–09 recession, we saw the unemployment rate reach 50-year lows without causing an undesired rise in inflation. Structural changes in the economy—and in particular the labor market—have greatly expanded the level of employment that can be maintained without creating inflationary pressures. But, changes like those are hard to see in real time, making estimates of the natural rate of unemployment or other barometers of the economy’s potential inherently uncertain and subject to change.5  Evolution in Our Thinking One clear lesson is the critical importance of formulating a policy approach that effectively and consistently keeps longer-run inflation expectations anchored at 2 percent. Perhaps the most notable change we announced to our framework was explicitly describing success in terms of achieving inflation that averages 2 percent over time.

In particular, it stated that the Committee expects it will be appropriate to maintain the federal funds rate at its current target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.9 By linking future policy actions to economic outcomes and ultimately our dual mandate goals, this forward guidance clearly describes the key elements of the FOMC’s reaction function to economic developments and a changing outlook. Ready to Adapt One of the most important, but perhaps overlooked parts of our August announcement is that we will review our longer-run framework roughly every five years. This represents the Fed’s commitment to transparency and our willingness to continue to adapt to changing circumstances. Reviewing our longer-run framework and approach to our goals more frequently will ensure we are well prepared for the future, whatever it may bring. Conclusion I’ll conclude with this: these are extraordinary times. The announcement of changes to our longer-run framework comes during one of the most challenging periods our country and our economy have ever faced. These changes to the framework mean that we are well positioned to deliver on our dual mandate goals and support a strong and sustained economic recovery. 1 See Board of Governors of the Federal Reserve System, Statement on Longer-Run Goals and Monetary Policy  Strategy, as amended effective August 27, 2020.