samchain/econo-pairs-v1 huggingface dataset:
In the absence of other instruments, the case for “leaning against the wind” by setting policy rates higher during the boom phase seems stronger than before. But, at least most of the time, monetary policy does not seem like the most appropriate instrument to call on – it is not targeted at the key friction and involves too much collateral damage to activity. The deployment of macro-prudential instruments, focussed more directly on the source of the excessive exuberance seems more appropriate. But we still have much to learn about how such instruments work in practice and how they interface with monetary policy. 7. The relationship between price stability and financial stability. It is now pretty clear that price stability is not a sufficient condition for financial stability. Indeed, the empirical results of Section 2 suggest that the reduction in volatility associated with the Great Moderation may have contributed to excessively optimistic assessments of risk, the compression of risk premia and the expansion in leverage. That does not imply central banks should retreat from the pursuit of price stability, and macroeconomic stability more generally. But it does suggest that policy makers need both to be aware that long periods of benign conditions may foster excessive private-sector risk-taking, and to be ready to take the necessary action when that happens. 24  BIS Review 111/2010  Appendix: The model of Section 5 The model is a slimmed down version of Gertler and Karadi (2009). The economy is populated by two types of agents: producer/consumer households and bankers.

So it is important to ensure the presence of suitable mechanisms that facilitate the necessary co-ordination. In the arrangements recently proposed by the new government in the United Kingdom that is to be achieved by putting both the decision makers – the Monetary Policy Committee and the Financial Policy Committee – in the same institution and ensuring that they have a number of members in common. 6. Concluding remarks  To conclude, we return to the elements of the pre-crisis policy consensus outlined in the introduction and ask what remains or how it needs to be modified. 1. The role of fiscal policy. Fiscal policy is the topic of the next session. But we should at least note that the collapse of private demand after the demise of Lehman Brothers prompted not only the operation of the automatic stabilisers but also additional discretionary fiscal policy measures in the most affected economies, with the total fiscal impulse coming in at around 4 per cent of GDP. But the effectiveness of those expansionary fiscal policies in stimulating demand remains a matter of debate, both in policy making circles and academia. On the one hand, there are those who believe the fiscal multipliers are negligible, either because of Ricardian Equivalence or because of crowding out through the impact of high public debt and deficits on long-term interest rates.
To the one side, falling energy prices are weakening a key driver of underlying inflation pressures. Imported energy prices have played a central role in pushing up inflation for all economic sectors, given the huge energy shock we have faced. This is why measures of underlying inflation that capture the more persistent effects of energy costs are already showing a decline. [2] To the other side, increasing domestic price pressures could offset some of this disinflationary impulse. Measures of underlying inflation that capture items sensitive to the business cycle – such as Supercore[3] – or items with low import content are still strengthening. If this continues and aggregate demand picks up from its current compressed levels, we could see a handover from imported to domestic price pressures that keeps overall price pressures high. The key issue in determining which of these forces wins out will be developments in wages. The euro area has suffered a large terms-of-trade loss owing to rising energy prices, the cost of which must ultimately be shared between firms and workers. And it is important that there is fair burden sharing between them, with both accepting that they cannot fully recover the income that the euro area has paid to the rest of the world and the ensuing loss of output. So far, real wages have decreased substantially, while firms’ profit margins have expanded in many sectors. But the labour market is quite tight, labour shortages are increasing, and the terms-of-trade shock has largely reversed.

There are two factors which could explain this apparent resilience. The first is the atypical buffers for consumption that households have available in the current environment. They are still benefiting from sizeable fiscal policy support to shield them from rising energy prices, amounting to around € billion in 2022 and 2023, and they still have around € billion in excess savings built up during the pandemic. [9] The second factor is the reduced sensitivity of the labour market to slowing growth, which is supporting labour income and households’ employment expectations. Faced with labour shortages, firms are responding to weaker demand first by hoarding labour – that is, by further reducing hours worked rather than by cutting jobs. And now, with energy prices falling and wages rising, household disposable incomes are set to increase. This was reflected – before the recent financial market tensions arose – in our projections for a stronger  recovery this year. So, for inflationary pressures to ease, it is important that our monetary policy works robustly in the restrictive direction. And that process is only starting to take effect now. The first leg of the monetary transmission process – from policy measures to financing and monetary conditions – is already having a substantial impact. The cost of borrowing is increasing steeply, and loan dynamics look to be contracting faster than during previous hiking cycles. Credit growth to firms has dropped markedly since the third quarter of last year.
From master masons to information architects: how standards can transform reporting (and bring benefits well beyond it) Speech given by Gareth Ramsay, Executive Director for Data and Analytics & Chief Data Officer  Webinar hosted by The EDM Council 14 April 2021  I am grateful to Aaron Shiret and Angus Moir for their assistance in writing these remarks, and to Nicola Bennett, Ben Broadbent, Victoria Cleland, Matt Corder, Michael Davey, Dayo Forster, Andrew Hauser, Russell Jackson, Richard Lewis, James Proudman, Vicky Purkiss, Laurie Roberts, Paul Robinson, Beju Shah, Martin Udy, Mark Walsh and Rebecca Whitwam for their helpful comments and assistance 1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  Hello all – it’s a great pleasure to be speaking to you. I’d like to thank John Bottega and the EDM Council for virtually hosting us today. I want to begin by talking about cathedrals. The great cathedrals of Europe were built in the Middle Ages by teams of skilled stone masons. To get the dimensions of the building right, it is said that each team would use measures based around the body of the master mason: his foot, his stride, his arm, and so on. And so a local standard was born. Those standards were designed with one specific use in mind – the construction of that cathedral. And very useful they were, too. But they were closed systems – the foot and the yard used to build one cathedral were different from those used to build another.

And this was not just an English peculiarity: across the channel, a foot length in Strasbourg was 295 mm, a foot in Paris was 325 mm, but a foot in Bordeaux was a relative whopper at 344 mm1. Of course people came to understand the great benefits of enforcing universal, common standards. In part for maintaining the cathedrals themselves, so that new, replacement stones could be sourced that would fit snugly between their neighbours. But the benefits of universal measurement standards could be applied a long way beyond the niche discipline of cathedral building. Now some of you may think that today’s financial system is not perfectly comparable to the glorious gothic cathedrals of the Middle Ages. But like those cathedrals, many of the data systems underpinning today’s financial firms and markets were built with narrow reference to their own needs, by their own master masons – their CIOs and systems architects. They too were closed systems. Each needed to be able to record, track and manipulate its data. Its data points needed to fit snugly alongside each other. But the design of each system often paid little attention – understandably – to any broader public good. In this speech, I want to talk about whether there are wider public benefits that might flow from standardising these data labels, and set out a way forward to reap those benefits collectively. So let me turn from mediaeval architecture to data. At a central bank like the Bank of England, data is our life blood.
The CBC is governed by the principle of transparency in exercising its public function, enshrined in Article 8 of the Constitution, the bylaws of its own Constitutional Organic Act and the relevant legislation that has expressly included the CBC, such as Law No 20285 on Access to Public Information (2009), Law No 20730, which regulates the lobbying and management of private interests (2014), and Law No 20880 on public service probity (2016). Still, the Board has added several transparency standards that go beyond the aforementioned norms. For example, last March we made available to the public a total of 96 minutes of past monetary policy meetings held during the period 2000-2007, a practice that will continue into the future years. We have also included as passive subjects of transparency all division directors, area managers and heads of departments that may have relevant decision-making powers, and we have supplemented the obligations of the Lobby Law with the publication on the CBC’s website the weekly agenda of the Governor and all Board members. In addition, we have established an external Audit and Compliance Committee and an internal reporting channel to denounce situations of harassment or abuse. From the perspective of using the powers inherent to an autonomous institution to strengthen transparency in more specific areas that are not covered by general legislation, the CBC is preparing some additional initiatives to implement over the next twelve months. One, we want to raise the levels of information and guidance we give to the community regarding monetary policy decisions.

Needless to say, we must accept the reality that different national resolution regimes will continue to coexist. Let me be very clear on this: A full-fledged global resolution regime is a noble but seemingly unrealistic goal. We should not conclude from that, however, that the framework for cooperation across countries cannot be improved. One possibility is to work towards mutual recognition arrangements of compatible national resolution regimes. Recognising other resolution regimes helps each nation to adapt its own structures and processes in order to reduce frictions in crisis episodes. We should require that firms more clearly delineate different functions within their internal structures and simplify those structures. This will help facilitate an orderly wind down in the event of a severe crisis. It will probably also enhance effective management and risk management in these firms. This is an important point. As the crisis has demonstrated, in a  BIS Review 145/2009  5  number of cases it can be argued that firms were not only too big, but also too complex to be managed effectively. Furthermore, we need a financial market infrastructure which – to the extent that this is possible – minimises the destabilising effects of a failure on the rest of the financial sector. A key element that cannot be emphasised enough is the ongoing effort to centralise the clearing and settlement processes in the derivative market. This enhances transparency and reduces counterparty risk.
Currently, the leading candidate is so-called Contingent Capital bonds (CoCos), which convert from debt into equity in certain states of the world. It seems to me that to serve the purpose of GLAC for large and complex firms, such instruments would need to convert when a firm was still fundamentally sound, which is to say that they should have high capital triggers. For a large and complex firm, a low capital trigger would be dangerous, as funders and counterparties would be likely to flee before reaching the point at which the firm would be recapitalised through the CoCos’ conversion. Moreover, high-trigger CoCos would presumably get converted not infrequently which, in terms of reducing myopia in capital markets, would have the merit of reminding holders and issuers about risks in banking. BIS central bankers’ speeches  5  “Macroprudential” and the Financial Policy Committee Bringing this together, policies on trading-book capital requirements, loss-absorbing capacity, resolution and shadow banking can all contribute towards addressing the stability-threatening problems of myopia identified in the literature. And the higher effective capital requirements that this package can deliver might potentially affect incentives by exposing debtholders to risk; and, via reducing return on equity, by harnessing the energies of shareholders in monitoring the terms of distributions to managers. In that sense, quite technical things might have significant effects over time on behaviour and the structure of the financial system. That assumes that lessons from this crisis endure.

So, while we absolutely have to be alert to distortions, we are not crazy to infer, from yield curves, expectations about the path of policy rates or of inflation. But for financial stability, which of course affects macroeconomic conditions, I have always encouraged the team to do a Gestalt flip to thinking of markets as inefficient, riddled with preferred habitats, imperfect arbitrage, regulatory arbitrage, herding, and inhabited by agents with less than idealised rationality. That’s how during the early 2000s the team came to write about CDOs, ABCP, monolines and, eventually, vehicular finance etc. 2  Caballero R J (2009), “The “Other” Imbalances and the Financial Crisis”, MIT Department of Economics Working Paper No. 09–32. 3  See page 12 of Tucker P M W (2006), “Uncertainty, the Implementation of Monetary Policy and the Management of Risk”, a speech to the Association of Corporate Treasurers. 4  The potential risks associated with CPDOs (and other AAA-rated products) were discussed in the Bank of England’s April 2007 Financial Stability Report. 2  BIS central bankers’ speeches  Shleifer’s paper strikes me, therefore, as one example of exactly what the academic end of the economics profession needs to do in order to speak to policymakers framing and implementing reform. It engages with what I have previously described as “risk illusion”, in motivating a macroprudential prudential approach to policy.5 In other words, it carries policy implications.
So the measure should nevertheless provide a fairly good picture of inflation adjusted for the direct effects of the Riksbank’s interest rate changes. One advantage is that it is reasonable to assume that the nominal interest rates will rise as much in the long term as they will fall – they have no trend. This means that this measure, unlike the CPIX, will have the same long-term mean value as CPI inflation. Consequences for monetary policy? One can say that until fairly recently we have assumed that the CPI and the CPIX have the same long-term mean value – that the measures converge a few years ahead. Ensuring that the CPIX is reasonably close to 2 per cent has meant ensuring that the CPI, our target variable, also does so. But this will not be the case over the coming years. The measures will also differ in the long term. Although this is only a question of a few tenths, the measures cannot be expected to converge even during the years immediately beyond the forecast horizon. So what does this mean for our interest rate policy? A hypothetical reasoning may perhaps help us to understand the concepts. If one looks at our most recent forecast made in April, the CPI was fairly close to, although still a couple of tenths above the target of 2 per cent at the end of the forecast horizon. The CPIX was slightly lower, just under 2 per cent.

Sophistication of financial products has led to inadequate understandings of market players as well as lack of transparency in certain securities markets and intermediaries. One notable example is the unregulated and non-standardized markets for structured products where a fair evaluation of the instruments as well as of the counterparty risk has been very difficult, not only for market players but also for supervisors. Second, the current financial crisis demonstrates the amplifier role of the financial sector in a boom-bust economic cycle. In the environment of fast credit expansion, rising capital inflows, and lack of proper regulation, the inherent procyclical nature of the financial sector has contributed to one of the unprecedented build-up of financial imbalances in the US during the boom and a disorderly unwinding of these imbalances during the bust. Third, the crisis also raises a crucial question about the role of monetary policy in maintaining macroeconomic and financial stability. The important question is whether monetary policy should be employed to help deter the build-up of asset price bubbles apart from the macroeconomic stability objective. And fourth, Asian financial markets have been more susceptible to negative events in the major financial markets. Volatilities in the regional financial markets have increased, driven increasingly more by actions of international investors. We have witnessed large capital reversals during the periods of risk aversion as their investment positions were unwound both in the stock and bond markets. Ladies and Gentlemen, These four important lessons will be important inputs for us while we cautiously proceed with further integration.
In comparison with other countries, productivity gains in banks and other service sectors stand out in particular. Examples are automated processes and swifter payments in the financial industry, and improved inventory and management systems in commerce and transport. This reduces production costs. The business sector is quick to adapt and change, and to make use of new technology that is available in an international market. This is probably due to the modernisation in the 1980s and 1990s of the way the economy functions, which resulted in more efficient markets. Although satisfactory current statistics for central government and local government productivity are not available, government agencies have probably also become more efficient. New technology and new organisational structures have certainly provided opportunities to increase efficiency. Third, an ample supply of foreign labour has been an important factor behind output growth. In particular, the supply of foreign labour has increased sharply after EU enlargement in 2004. Improved terms of trade, high productivity growth in the Norwegian business sector and the increase in labour supply have resulted in a favourable environment for the Norwegian economy. Unemployment has declined considerably and is now very low. The labour market is tight. Unemployment has not been as low since the second half of the 1980s, and employment has risen sharply this year. Wage-earners and enterprises have both fared well. Cheap imported goods have resulted in a subdued rise in consumer prices and a substantial increase in wage-earners’ real wages. High export prices have restrained the rise in real labour costs.

There are many self-regulating mechanisms in the economy, but inflation does not regulate itself. The inflation target of 2.5 per cent also provides a framework for the social partners. Over time, nominal wage growth above 2.5 per cent will entail higher real wages and higher purchasing power. Real wage growth that exceeds productivity growth may lead to higher inflation and higher interest rates. In government-financed enterprises, which are often labour-intensive, budgets are adapted to expected wage growth. This is usually in line with assumptions about cost inflation in the economy as a whole and with the inflation target. If wages rise more than this, efficiency must be increased in order to minimise the adverse impact on service production and customers. 2  Calmfors and Driffill (1988): “Bargaining structure, corporatism and macroeconomic performance”, in Economic Policy, April, 14-61 and Driffill (2006): “The Centralization of Wage Bargaining Revisited. What have we learned?” in Journal of Common Market Studies, Vol. 44, no. 4, November, 731-756. BIS Review 121/2007  3  All economic agents can plan ahead on the assumption that inflation will be about 2.5 per cent over time. This is the most valuable contribution Norges Bank can provide the social partners and other economic agents. Thank you for your attention. 4  BIS Review 121/2007  BIS Review 121/2007  5  6  BIS Review 121/2007  BIS Review 121/2007  7  8  BIS Review 121/2007