samchain/econo-pairs-v1 huggingface dataset:
Both create uncertainty, misallocate resources, discourage productive investment, and ultimately drag down economic growth. Third, asset prices have important feedback loops with consumer prices. Rapidly rising asset prices raise general inflation expectations and also directly affect rentals and accommodations costs that go into the consumer price index. Fourth, asset purchases financed by excessive borrowing on the expectation of future capital gains undermine financial prudence. If households or corporates build up leverage during periods of low interest rates, they will be vulnerable when interest rates normalise. What can central banks or governments do about asset bubbles or the leverage cycle? An oft-cited reason for not doing anything is that we cannot reliably determine whether asset prices have overshot fundamentals or whether leverage has reached unsustainable levels. But the issue is not whether we can establish if there is an asset bubble or not. The issue is whether the rise in asset prices is creating negative spillover effects on the economy or whether a future sharp reduction in asset prices will lead to instability or serious dislocations. If the assessment is that it would, we have to act proactively to moderate prices now. And  6  BIS central bankers’ speeches  this has indeed been the approach taken by MAS and the government with respect to property prices. How macroprudential policies have been applied Singapore applied macroprudential tools as early as 1996, to help cool an overheated property market.

BIS central bankers’ speeches  1  Monetary policy in the advanced economies has been extraordinarily loose for a prolonged period of time. It has been unconventional in three important regards. •  First, short-term interest rates are at or close to the zero bound – and have been so for over four years now. •  Second, central banks are purchasing non-traditional assets in large quantities to exert downward pressure on long-term interest rates. This has been going on for close to five years now, with central bank balance sheets in the US and the UK, for example, ballooning to more than three times their pre-crisis levels. •  Third, central banks are providing “forward guidance”, either in the form of commitments not to raise interest rates until certain real economy thresholds are met or plans to expand the monetary base until an inflation target is reached, helping to extend expectations of easy monetary conditions. The overall impact of these measures has been to reduce tail risks in the advanced economies and prevent a sharp deceleration in growth. But they have been less successful in restoring economic growth to pre-crisis trend rates, in the face of deleveraging pressures. Debt-to-GDP ratios in the G3 economies must normalise at lower levels to restore macroeconomic and financial stability. This necessitates a decline in consumption. Banks are less willing to lend, and the private sector less willing to borrow. The relationship between liquidity and credit appears to have broken down.
In contrast, in the context of the absence of observable macroeconomic imbalances that hinder growth, a scenario in which the global outlook improves, combined with the end of the adjustment of mining-related investment, and a rebound in sentiment, may lead to a more dynamic recovery (figure 9). 17. In fact, several fundamentals of the Chilean economy have remained quite solid during this weaker part of the cycle. As you might know, Chile was one of the first few countries to introduce a structural fiscal policy, which has been applied consistently over more than 15 years. As part of this policy, the government has been able to save during good times and currently has two sovereign wealth funds, totaling almost 10% of GDP. Figure 9 Public sector balance (percent of GDP)  4  Latin America: 1995-2015 average (*)  2  1.1  0 -1.5  -2  -0.5  Chile  Peru  Brazil  Colombia  -6  Argentina  -3.4 -3.1  Mexico  -4  -0.9  Chile  4  9  2  6  6  0  3  3  -2 0  0  -4 -3  -3  -6 -6  -6 90  94  98  02  Effective  06  9  10  14 18(f)  Structural  (*) General Government Financial Balance. (f) For 2017 to 2019, forecasts obtained from the 2016 Public Finances Report. Sources: Moody’s and National Budget Department, Ministry of Finance of Chile. 18.

22  This change was intended to  ensure the leverage ratio did not impede the transmission of monetary policy. But to offset the removal of central bank reserves and ensure the amount of capital banks need to meet the leverage ratio requirement did not decrease, the requirement was also raised from 3% to 3.25%. A second change was designed to deal with window dressing behaviour that we had started to observe. From 2016 banks have been required to report and disclose the denominator of the leverage ratio based on assets averaged over the quarter. 23,24  Previously it was based on assets observed on the last day of the  quarter. But this led to banks seeking to shrink their balance sheets at quarter-ends in an attempt to  22  Prudential Regulation Authority Statement on the leverage ratio, https://www.bankofengland.co.uk/-/media/boe/files/prudentialregulation/publication/pra-statement-on-the-leverage-ratio-august2016.pdf?la=en&hash=F50C86C8AAA788EBFAC159F009BBED7D2FE07B83, August 2016. 23 Prudential Regulation Authority Policy Statement 27/15, https://www.bankofengland.co.uk/-/media/boe/files/prudentialregulation/policy-statement/2015/ps2715. 24 Banks in scope of the UK leverage ratio framework are required to disclosure a leverage ratio each quarter. A bank’s leverage ratio denominator should be based on its daily on-balance sheet exposures averaged over the quarter and its monthly (on the last day of the month) off-balance sheet exposures averaged over the quarter. 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  increase the leverage ratios they disclosed. This led in turn to volatility in some financial markets at these times (Chart 6). Volatility at quarter-ends appears to have abated since this change.
And monetary policy will, of course, continue to be critical, but monetary policy alone cannot provide the elements of the framework necessary to provide an environment for innovation and long-term decisions that will be so vital for future growth. Economic policy, in general, needs to be more forward looking in providing a longer-term framework for stability. On the fiscal policy front, demographic changes confront governments around the world with exceptionally difficult choices. For the United States, these challenges are less acute than for many of the major economies, but they are still formidable in their scale and complexity. Even for the near term - for the period before the increase in number of retirees starts to have a major impact on Social Security and Medicare expenditures - we are running an unsustainably large fiscal deficit. Despite the recent improvements in revenues, the expected trajectory for the fiscal deficit will mean that federal government debt will continue to rise as a share of GDP. The restoration of fiscal rules - such as those that require new tax cuts or expenditure programs to be funded with offsetting policy measures - will help reduce the risk of further deterioration. However, they need to be complemented by a consensus on policy changes that will produce smaller future deficits.

Part of this recent dynamic in financial markets is a consequence of the present state of the international monetary system, in which a substantial part of the world economy runs exchange rate regimes tied in some way to the dollar. This has entailed a sustained period of very substantial official accumulation of dollar reserves, putting downward pressure on U.S. interest rates and upward pressure on U.S. asset prices. These forces are surely transitory, but their impact on capital flows, interest rates and asset prices are important, not just in terms of their short-term impact on growth. If they are large enough, they have the potential to alter or distort current decisions about investment and consumption in a way that could be detrimental to our longer-run growth prospects. And they are important because they work to mask or dampen the effects on risk premiums in financial markets that we might otherwise expect to be associated with the expected trajectory of the fiscal and external imbalances in the United States. Given this broad context, I want to touch briefly on some of the policy issues that are likely to be important to the prospects for economic performance, here and around the world. Despite the relatively favorable performance of the global economy, we face a range of daunting longer-term economic policy challenges. The improvements in the conduct of monetary policy were critical to the improvements in productivity and growth that we are now seeing on a global scale.
As regards the timing of this type of monetary policy measure, it is generally true to say that if the Riksbank waits too long before making a necessary repo rate adjustment, when the increase does come it may have to be larger than otherwise in order to arrest the overheating and inflationary tendencies. That could introduce undue instability into output and employment. A higher repo rate does not necessarily impede the continuation of a favourable economic trend; it may even be required for a good and sustained development of employment and growth, as is illustrated by how the Federal Reserve has acted in the United States. A judicious series of increases in the federal funds rate seems to have contributed to the longest post-war period of growth in the United States. Since it was raised by degrees from 3% from 1994 to 1995, the American instrumental rate has moved between 4.5 and 6%. Having said this, it must be realised that there is no simple answer to the question of what constitutes a judicious timing or magnitude of a repo rate increase. One alternative, of course, is to act early and make a small increase even though indications of growing inflationary pressure have not actually shown up. Such a line can be seen as insuring against the adverse consequences an acceleration of inflation might entail. In my opinion, however, there are other aspects that it is important to analyse and incorporate in the assessment. Lower inflation propensity?

The supervisory activity, along with prevention of extreme cases of insured institutions’ bankruptcy, carries out also the administration of such institutions, in cases when they fail irrecoverably. In this stage, the role and contribution of the Deposit Insurance Agency, until that moment “invisible”, appears with the whole magnitude and importance. It is indispensable not only in terms of treating depositors that have had savings at the bankrupt institution, but also in the “calming down” effect for all the depositors of the banking system. In fact, the world experience has indicated that the deposit insurance function of the customers of the banking system is an important instrument in the framework of maintaining the banking system sustainability and keeping public confidence in it. The timely payment of the deposit value at the insured amount, in the case of a bank’s bankruptcy, allows responsible authorities to be focused on the procedures intending the isolation of the case and the recovery of the values of the bankrupt institution. The activity of responsible deposit insurance institutions has different characteristics in different countries. Their legal framework provides responsibilities that are limited only in the role of the payer of the available fund and other cases, when responsibilities are extended further, up to the recovery of the insured institutions’ values that have gone bankrupt.
Allow me to focus on three particularly important ones in which the Spanish economy is in a worryingly poorer position than our European partners: human capital, technological capital and the financing of innovation. According to the available evidence, the presence of human and technological capital shortfalls is the main reason for the low productivity of Spanish firms.3 And the difficulty in obtaining finance for highly productive business projects has shown itself to be a determinant of the inefficient allocation of resources to firms.4 The need to correct the human and technological capital shortfalls is particularly urgent when viewed in the current context of technological change. The advances in digitalisation, automation and technological development are altering certain crucial aspects of the economy, such as consumption patterns, production processes or the provision of public and private services. Thus, for example, the spread of new technologies has allowed the financial sector to provide services in more flexible ways not requiring customers to be physically present. As an example, the percentage of Internet users in Spain reporting that they use electronic banking services has increased by 30 pp from 2003 to 2018.5 However, all sectors to a greater or lesser extent are caught up in the so-called “digital revolution”. 3  See F. Schivardi and T. Schmitz (2019), “The IT Revolution and Southern Europe’s Two Lost Decades”, Journal of the European Economic Association, forthcoming. 4 See Chapter 4, “Business dynamics in Spain: characteristics, determinants and implications”, Informe Anual 2015, Banco de España.

First, it decided to continue to support ample liquidity conditions by conducting its refinancing operations as fixed-rate tender procedures with full allotment, at least until mid-January 2012. Let me point out that the outstanding Eurosystem credit in our refinancing operations currently amounts to about € billion and has come down since last year. The total value of marketable securities already presented and approved for Eurosystem credit operations amounts to € trillion and our counterparties have at their disposal almost € trillion out of the overall total of  2  BIS central bankers’ speeches  existing eligible securities of about € trillion. Therefore, this confirms that there is no liquidity or collateral shortage for the euro area banking system. Second, the ECB resumed its government bond market interventions under its Securities Markets Programme (SMP) in August. Via these interventions, the ECB Governing Council aims to help restore a more appropriate transmission of its monetary policy stance in an environment in which key market segments, such as those for government paper, are dysfunctional. The interventions do not influence our monetary policy stance. In order to sterilise the impact of these interventions on the liquidity conditions in the banking system, we re-absorb the liquidity injected. Let me underline that the secondary market purchases are not, and cannot be used to circumvent the principle of budgetary discipline as a pillar of Economic and Monetary Union.
Similarly, Bank Rate may be increased more rapidly than anticipated if economic developments raise the outlook for inflation significantly.” Later on, in the summer of 2015, we described guidance about future interest rates, more succinctly, as “an expectation, not a promise”. The time inconsistency of optimal policy: why “low-for-long” guidance may not be as powerful as simple models predict So why, in view of the power of the policy apparent in Chart 4, hasn’t this committed form of guidance been used more often? In their 2015 paper, Del Negro and co-authors claimed that, while it had helped ease monetary conditions, the Fed’s post-crisis guidance had had significantly less impact on demand and inflation than predicted by theory. Their explanation was that, in the real world, demand is less sensitive to forward interest rates than the theory presumes. That’s probably true. Certainly the very simplest models, in which a drop in forward rates five years ahead (say) does almost as much to stimulate spending as a same-sized cut in the current rate, surely exaggerate the impact. But there may also be a more fundamental problem with the policy. It’s intrinsically “time inconsistent” (to use the technical term). From today’s perspective, in the face of a risk of deflation, it would be better if you could persuade people that you will keep policy loose for an extended period, even in the event that inflation rises above target.

Chart 1: Monetary policy and economic activity tightly correlated before the financial crisis  Six-month rolling averages. Combined IHS Markit/CIPS and CBI distributive trades lagged one month. Sources: ONS, IHS Markit/CIPS, CBI, Bank of England and Bank calculations. From an economic perspective, the behaviour of policy over that period was understandable. If you think trend supply growth is pretty stable – and that was generally the view at the time – then stronger activity will always mean more pressure on resources, weaker activity less of it. So, in order to stabilise inflation, your best response is to lean against these swings in demand. If, in addition, there are few other enduring influences on inflation (from the rest of the world, for example) then there’s no reason to respond to anything else. Whatever the rationale, this stable “reaction function” made it easier for asset prices to respond as well, in a similar fashion. Chart 2 plots that same survey-based measure of economic growth against expected future interest rates (specifically the three-year forward rate). Even without any verbal encouragement from the MPC monetary conditions tightened in response to stronger growth. As Mervyn King pointed out at the time, the cyclicality of forward interest rates, in anticipation of action by the MPC, itself helped to stabilise demand, putting less burden on the policy rate. (Some of you may remember that, in an unlikely comparison,  he suggested this was similar to the behaviour of the hapless England defenders against the great Diego Maradona in the 1986 World Cup.
In my speech in 2016 I also didn’t address how monetary policy and communication of monetary policy should be formulated more explicitly in a situation where inflation is not expected to reach the target during the forecast period, and there is a risk that the long-term inflation expectations will fall and become entrenched at a low level. We had not come that far then, but as many countries now find themselves in a situation where this risk is a reality, it is a problem that the world's central banks and governments need to deal with. Continued expansionary policy with possible modifications So, if I return to the Riksbank, how do I think we should act more specifically – what should be the plan from now onwards? With regard to communication of  6 [15]  the principal plan, we should, as I mentioned earlier, both be completely clear that monetary policy is still aimed at the inflation target, and also continue emphasising why it is important that the inflation target is some way above zero – with the aid, for instance, of the three questions I mentioned earlier. Explaining why a respectful distance to zero inflation and deflation is so important is not a new element in our communication, but as it is more important than ever before that there is a broad understanding of it in society, we need to increase our efforts. Of course the actual policy should in accordance with this remain expansionary, with the tools that are at our disposal.

For those who might be concerned about the change, let me reassure you that the new polymer notes will retain the familiar look of Bank of England banknotes, including of course the portrait of Her Majesty the Queen, as well as depictions of historical characters of national significance. That continuity of design helps explain why people who have had a chance to handle specimen notes were even more likely to view polymer favourably. The depiction of historical characters will remain an integral feature of our banknotes, providing an opportunity to celebrate individuals that have shaped the United Kingdom. In  BIS central bankers’ speeches  1  order to ensure public confidence in banknotes, it is essential that the choice of characters commands broad public respect and legitimacy. That is why in July, at the same time as announcing that Jane Austen would feature on the new £ note, I promised that we would review the way in which the characters featured on banknotes are selected. Today we are announcing a new set of principles to guide the choice of characters and a new process to ensure that those principles are, and are seen to be, followed. The new principles for character selection state clearly and positively the Bank’s aims in using historic characters on our notes. They put diversity and inclusivity at the heart of the selection criteria. And they make clear our intention to portray a diverse range of characters over time, with each new decision taking into account previous choices.
I am going to talk about Texas tonight, this being my annual report on the status of the Texas economy. I will walk you through a series of slides that illustrate the strength of the Texas economy, a series of economic records we have set this year, and to provide a balanced view, some of the growing pains that we are encountering. But first, I want to make a comment on monetary policy. Thinking outside the box It strikes me as timely for the Fed to consider implementing one of the possible options under the “normalization principles” the FOMC articulated in September: allowing our security holdings to run off as the bonds in our massive portfolio mature. 1 Before you jump out of your skin at this “radical” thought, let me ask you to consider the following. The 10-year Treasury note has rallied in price and declined in yield to 2.29 percent. German 10-year bunds, the equivalent market-anchoring European security, are trading to yield 0.74 percent; the Japanese 10-year yields 0.42 percent. The spread between the U.S. and the German sovereign yields is slightly narrower than it was at the end of third quarter 2014, but it remains historically large and attractive for investors. 2 Hold that thought.

We already know that new loans and bonds can be issued without the index, based on the range of existing risk free rates and conventions already used in different markets. The SONIA Compounded index will provide an additional, optional tool to complement these, and firms can plan on the basis that the index will be ready to use ahead of the 2020 Q3 target for ceasing new LIBOR issuance. 14  FRBNY will commence publication of its SOFR Index on 3 March: www.newyorkfed.org/markets/opolicy/operating_policy_200212 8  All speeches are available online at www.bankofengland.co.uk/news/speeches  8  FIGURE 3: Overnight Rates, Compounded Index and Compounded SONIA Rates 15  Some market participants may like us to go one step further by producing daily ‘screen rates’ for one or more specific period averages – for example 6-month, 3-month or 1-month compounded SONIA rates. Illustrative snapshots of those averages are shown at the bottom of Figure 3. But for screen rates to be of use and drive transition in sterling markets, the specific set of published rates would need to be simple, widely accessible, and based on a clear consensus from the market on the preferred convention to be used. Publishing a large number of alternatives could risk undermining the very certainty that borrowers need. So, in addition to announcing the index, we are today opening a consultation on whether there is sufficient market consensus for production of a given set of simple period averages, giving market participants the choice between a small number of alternative options.