samchain/econo-pairs-v1 huggingface dataset:
Given that monetary policy exerts its impact on the economy with a time lag, our work is based in practice on ensuring that future expected inflation is 2 per cent. Our underlying assumption is that the time lag in policy is mainly one to two years. However, there is sometimes reason to refrain from achieving the target as defined in this way. This may be the case when inflation is affected by transitory effects, such as quickly rising or falling energy prices or changes in indirect taxes or  4  BIS Review 29/2003  mortgage interest expenditure. For this reason, the Riksbank also makes use of measures of inflation that exclude such effects. Inflation measured by the index UND1X is one example. Moreover, there may be reason after a shock to bring inflation back to the target in the somewhat longer term. This enables us to avoid overly negative implications for production and employment. The ECB measures price stability as a year-on-year increase in consumer prices of below, but close to, 2 procent. The target relates to inflation measured by the Harmonised Index of Consumer Prices, HICP. The idea is to reach the goal in the medium term, which implies that the ECB also disregards transitory effects on inflation. Consequently, the ECB’s definition is similar to our own. There are some differences, however. One is that the ECB’s target is defined in terms of HICP.

For Sweden, the long-term implication is that the central bank governor, once all current and new EU Member States are participating in monetary union, would be able to vote on approximately 60 per cent of the decisions. The central bank governor of a large country like Germany, on the other hand, which has around nine times as many inhabitants, would be able to vote at 80 per cent of the meetings. However, all central bank governors would have the right of attendance and expression at all meetings. From a Swedish perspective, this appears to be a rather advantageous solution in my opinion. The ability to exert influence on the formulation of policy is important of course, particularly from a democratic point of view. But it is not simply a question of voting rights, which is the impression one gets sometimes when listening to the debate. Firstly, it is important to remember that the central bank governors must act in the interests of the entire euro area when setting interest rates. In other words, they must not give priority to national interests. Thus far, there have not been any votes held in the ECB Governing Council; rather, monetary policy has been determined through consensus. In addition, all central bank governors have the right of attendance, even under the new proposal, and can therefore be involved in discussions on the stance of policy.
That does not prevent us from constantly monitoring the measures’ efficiency and from standing ready to make new decisions. As we say in the Report, the Bank is always vigilant to respond to the challenges that will be posed by new risk scenarios. Let me now describe our appraisal of the economic outlook and related risks. 2. The macroeconomic scenario As I said, the spread of COVID-19 is having massive effects on the world economy. At first, most concerns were focused on China and world trade, given China’s weight in global value chains. As the virus has spread to other continents, fears have increased that the speed of contagion may overwhelm hospital capacity, with high costs in lost human lives and well-being. In view of this, most governments have been adopting drastic sanitary policies to slow down the spread of the virus, which, together with the natural fear of the population, has had a significant impact on the economy. In particular, measures to prevent person-to-person contact, such as suspending educational activities, closing down borders, internal sanitary cordons and collective quarantines, have paralyzed entire sectors—especially services—, affecting logistics chains and compromising the cash flow of businesses in many countries. The unprecedented magnitude of these phenomena and their dissemination on a global scale has been reflected in a deterioration of world financial conditions, the most significant since the Global Financial Crisis of 2008. Central banks and governments in several countries have announced substantial measures to mitigate the impact on income and placate market fears.

Figure 10 CPI inflation forecast (1) (2)  CPIEFE inflation forecast (1) (2)  (annual change, percent)  (annual change, percent)  5  5 5 Dec.19 MP Report  4 3  5 Dec.19 MP Report  4 4  4  3 3 Mar.20 MP Report  2 1  3 Mar.20 MP Report  2 2 1 1  0  1  0 0 18  19  20  21  22  0 18  19  20  21  22  (1) 2018 figure shows the annual variation in the CPIEFE obtained by splicing the 2013=100 series with the monthly variations of the 2018=100 basket as from February 2018. See box IV.1 Monetary Policy Report of in March 2019. (2) Gray area, as from the first quarter of 2020, shows forecast. Sources: Central Bank of Chile and National Statistics Institute (INE).
In addition, the Federal Reserve developed a term deposit facility to drain banks’ reserve balances.14 This playbook of draining reserves back to reserve scarcity to support the transmission of interest on reserves into market rates is standard among central banks. If policymakers had chosen to do so, the Federal Reserve could have made such a term reserve draining approach work to help control money market rates in the United States.15 So, why did the Federal Reserve not follow this approach of large-scale reserve draining? As the balance sheet continued to grow as a result of asset purchase programs, it became apparent that such reserve draining operations would have been very large in comparison to the size of private money markets. As a result, they probably would have had lasting effects on the structure of those markets – for example, by reshaping the structure of term money market activity according to the structure of the Federal Reserve’s operations. These lasting effects could have been especially large if the balance sheet did not run off quickly. For this reason, the Federal Reserve instead pursued offering an overnight investment opportunity that could, with sufficient capacity, intensify competition in money markets and, without necessarily draining reserves, enhance the transmission of IOR into other overnight money market rates. This approach entailed a twist on a traditional Federal Reserve tool, reverse repos: Instead of running quantity-based, term operations aimed at altering reserve levels, the Desk would run interest-rate-based overnight operations aimed directly at influencing market rates.

3  With the commencement of the policy normalization process in December 2015, the Federal Reserve began issuing an implementation note that provides the operational settings of the Federal Reserve's policy tools. This note serves to separate communications about the policy stance from those about policy implementation. It also promotes greater cohesion and transparency in communications about policy implementation by consolidating information that was previously provided in FOMC statements, FOMC minutes, Desk statements, and elsewhere. 4  An estimated historical series for an effective federal funds rate, produced using the new data source and calculation methodology, is available on the New York Fed’s website. This series will be updated at the end of February. 5  Demand for loans of reserves was driven, for example, by reserve requirements imposed on depository institutions. 6  I emphasize “all else equal.” There were many subtleties to the pre-crisis relationship between the operations and money market rates. In particular, money market rates would often move to a new target rate even before operations were conducted, because of the Federal Reserve’s credibility. Of course, that credibility was underpinned by the Federal Reserve’s actual operational capability. For a detailed exposition on pre-crisis monetary policy implementation, see Bernanke, “Implementing Monetary Policy,” March 30, 2005. 7  Of course, the Desk also controlled the level of reserves through permanent open market operations.
The market can thereby assess itself when interest rates will start to rise. The Riksbank could certainly achieve an equivalent effect by being clear and, through the use of alternative scenarios and systematic monetary policy, making  12 See Del Negro et al. (2015). 13 The Fed introduced this type of state-contingent forward guidance in December 2012 when it was communicated that interest rates would not be raised before unemployment had declined to 6.5 per cent (with inflation expectations anchored); see Bernanke (2020). 15 [25]  the market understand how we will react to future surprises. However, it cannot be ruled out that some form of more explicit forward guidance can sometimes be a simpler and more effective way of communicating. Coordinating with fiscal policy at the lower bound In the last 30 years, the division into fiscal policy and monetary policy in Sweden has been quite clear. An independent central bank with inflation targeting has used its interest rate to push the economy, in the short term, in the direction necessary to reach the inflation target: a high interest rate in upswings and a low interest rate in downturns. The fiscal policy contribution to stabilising the economy has primarily been in the form of automatic stabilisers. Fiscal policy has instead mainly focused on distribution policy and structural issues such as creating stable conditions for sustainable growth. The background to this division was the slow decision-making process in fiscal policy and the difficulty in rapidly adjusting to the changed conditions.

The argument for raising the inflation target is that this would increase the average scope for monetary policy in future recessions, as the average nominal interest rate is the sum of the real interest rate and inflation. If the real interest rate falls, the inflation target can, in principle, be raised by as much to restore scope. Does it matter to the economy if the inflation target is two or, say, four per cent? Empirical research has certainly identified a relationship between the level of average inflation and growth, but this relationship is quite weak and primarily seems to be relevant when inflation is relatively high. High inflation also seems to coincide with greater variation around the average level. There is thus a certain support for the view that the inflation target should be fairly low. However, the  12 [25]  inflation target’s most important function is to provide the economy with a nominal anchor, for example for wage formation activities to coordinate around. There are practical aspects that must be considered if the inflation target is to be changed. Establishing a new level may require a great deal of work, as it takes time for the participants in the economy to get used to new targets and a change may also lead to the private sector starting to expect further changes of the target later on.
Taking this to the monetary policy context, expectations for disruption or volatility from an substantial change in the Federal Reserve’s operational posture, even if totally unfounded, could bring about disruption, as the holders of those expectations act to protect themselves or profit from what they believe is likely to come. The solution is to try to avoid generating such expectations for disruption to begin with, by acting gradually and predictably. 10 / 15  BIS central bankers' speeches  Another potential explanation for the relative stability of longer-term rates this time around is that balance sheet news this year, taken together, just hasn’t been all that surprising to market participants. Panel 6 shows market participants’ expectation for the level of the federal funds rate that would prevail when the reinvestment policy first changes, as well as expectations for the date of that change. As can be seen, balance sheet normalization started slightly earlier than expected, both in rate terms – it began with the federal funds rate at 1.16 percent – and, more notably, in terms of the absolute date. But at the same time, earlier in the year, many market participants had seen decent odds that the Federal Reserve would reduce its balance sheet more quickly with a full-stop end to reinvestment. Panel 7 shows the decline in expectations for both no change in Treasury reinvestments and a hard-stop in them.

In particular, central banks have had little directly relevant past experience with the impact of such a reduction in holdings of domestic securities and in reserves. One relevant experience, of course, was the 2013 “taper tantrum,” which shows that markets can have outsized reactions to changes in balance sheet policy even before they happen. Moreover, experience with asset purchase programs, both here and abroad, clearly demonstrates that market volatility can ensue from balance sheet policy changes that market participants perceive as surprising, unclear, or rapid. All of this indicates to me that, at policy turning points like these, central banks should carefully and clearly communicate their intentions, provide as much transparency as possible, and make transitions in policy implementation as slowly as overall macroeconomic policy objectives permit. 1 / 15  BIS central bankers' speeches  Policymakers have made it clear that balance sheet normalization is intended to operate in the background, and that the bar is high to making changes to the FOMC’s normalization plan. That said, the future is uncertain, and as a result the Desk will maintain an appropriate set of capacities should the FOMC deem something different be required to promote the Federal Reserve’s objectives. We will also continue to gather market intelligence, including through surveys of primary dealers and market participants and through a robust set of statistical data collections, to further policymakers’ understanding of market participants’ expectations for the balance sheet and to monitor market functioning. The rest of my speech will go as follows.
In addition, we still believe in an appreciation of the krona during the forecast period due to fundamentals, which have subduing effect on imported inflation. It is therefore estimated that payroll expense could increase by an average of just over 4 per cent a year during the forecast period without any threat to the inflation target. However, 4 per cent is too high in the slightly longer term. There is a great risk that this figure will become established as a norm, as payroll expenses have increased by approximately 4 per cent a year over the past five years. If Sweden were to participate in Stage Three of EMU, we cannot have a rate of wage increase that deviates from the average in the euro countries. If the "norm" for payroll expense increases is 3.5 per cent, this means that nominal wage agreements must be signed at lower levels. This is because the scope must also cover wage drift and other wage costs, such as collective fees and reductions in working hours. Conclusion  In the October Inflation Report we foresaw a slightly more prolonged economic recovery than had earlier been expected. The weak development in the financial markets in the wake of bankruptcies and accounting scandals had contributed to the start of a decline in confidence from companies and households. In Sweden demand had been upheld relatively well, but it was estimated that fiscal policy needed to be tightened up to manage the expenditure ceiling. This means that growth may be more subdued in future.

Villy Bergström: Monetary policy and wage formation in Sweden Speech by Mr Villy Bergström, Deputy Governor of Sveriges Riksbank, at the HSB Bank’s Finansdag, Stockholm, 13 November 2002. *  *  *  Let me begin by thanking you for the invitation to come to HSB and for giving me the opportunity to discuss wage formation. As you know, the Riksbank's objective is an inflation rate - measured against the annual change in the consumer price index (CPI) - limited to 2 per cent, with a tolerance interval of +/- 1 percentage point. As interest rate decisions affect price pressure, partly through resource utilisation, with a certain time lag, monetary policy needs to be based on the total assessment of the rate of price increase one to two years ahead. Payroll expense accounts for approximately 70 per cent of the total value added in the economy and is thus crucial to the development of costs and prices. Wage formation has also gained increased topicality since the Swedish Municipal Workers' Union decided to terminate its collective wage agreement before the third year. The Riksbank's assessment in the October Inflation Report also pointed to high wage increases as a potential risk factor for domestic inflation. New conditions for wage formation in the 1990s New conditions for wage formation were created at the beginning of the 1990s. Monetary policy became more clearly focussed on maintaining low inflation and tighter fiscal policy was necessary to consolidate public finances.
The difficult times of past years, during which most institutions showed notable resilience, led many of them to undertake reforms designed to reduce costs, such as the sale of non-strategic assets, and these decisions should now be bearing fruit. The improved situation of financial institutions at the international level seems to be borne out by the favourable outlook for their future performance that agents operating in the markets have. In 2003 this perception was reflected in rising stock market prices, reduced implied volatilities and narrowing risk premia. Spanish deposit institutions, thanks to their sound initial position and the fact that the Spanish economy outperformed the EU average, were less severely hit by the difficulties of past years. They were thus in a position in 2003 to benefit from the favourable international financial situation, from the rebound of the securities markets, and from the continued strong relative performance of the Spanish economy. In particular, Spanish deposit institutions enjoyed higher growth of earnings and profitability in 2003. This allowed the effects of a more competitive environment and low interest rates to be offset by larger business volumes and tighter control of operating expenses. Also, lower doubtful assets allowed bad debt provisioning to be reduced thanks to the smaller need for provisions to the specific fund (partly counteracted by changes in the statistical and general funds), thereby boosting the institutions’ profit and loss accounts. Solvency ratios held steady and default ratios stood at historical lows.

In the case of the United States, the correction of the external deficit necessarily involves reducing the high budget deficit, which is a result of the highly expansionary fiscal policies pursued in recent years. The United States and other countries must, in the near future, adjust their monetary policy towards a stance more in keeping with a more advanced cyclical position, departing from what are at present very low official interest rates that entail a notable stimulus for activity. In this respect, an appropriate communication policy, avoiding the overreactions to which financial markets are prone, is essential. This is particularly important, moreover, given the continuing geopolitical uncertainties and the fact that the recent oil price rises, were they to become entrenched, would bear unfavourably on both price stability and the cause of global recovery, making the task of central banks more complicated. In sum, ahead of the current upturn in the international business cycle, we should bear in mind one of the main lessons of previous cycles. This is, namely, the importance of taking advantage of the good times to make the adjustments needed to correct imbalances and to equip economic policies with greater room for manoeuvre that may be used when more difficult times arrive. It is therefore vital that the emphasis of economic policy shift from the short to the medium term, as regards both the fiscal and monetary strands of policy and structural reforms.
We are now working out the details for both schemes, and we look forward to further consultations with HKAB and other bodies as the proposals progress. The theme of the reform programme is facilitating greater competition in the banking sector while strengthening safety and soundness. Perhaps the single most important measure to remove barriers to competition will be the abolition early next month of the last remaining Interest Rate Rules, which involves removing the interest rate cap on savings accounts and ending the prohibition on interest on current accounts. There is, of course, much speculation about the immediate impact of this event: whether it will be a big bang that will change the face of banking services, or merely a quiet change of gear. Given the plentiful liquidity in the banking system, it is likely that it will be the latter. But there should be no doubt about its significance in bringing to an end restrictions that have been in existence for more than a third of a century. The restrictions, some of you may recall, were introduced in 1964 as a measure to prevent cut-throat competition among banks. They served their purpose, but they have now outlived their usefulness. Why do we place so much stress on facilitating competition through regulatory reform? I use the term “facilitate” because it is not within the power of a government – and it is certainly not the policy of our government – to create competition, or to force competition to happen.

These two key features of the British and Australian systems illustrate how the arrangements in Hong Kong do not go as far as, or are less formalised than, those in other jurisdictions. This may have something to do with different philosophical approaches: in Hong Kong the tradition has been a freemarket one, which entails a very low level of government involvement in business relationships. But as the Hong Kong market becomes more sophisticated and more competitive, and as consumer issues are coming more to the fore, it may be useful to consider whether Hong Kong should follow the path of other jurisdictions. At this early stage of discussion, there seem to be three broad options, which are not necessarily mutually exclusive. The first is some form of self-regulation by the banking industry. The second is to provide a specific mandate to the regulator, that is the HKMA. The third is to place the responsibility in the hands of an Ombudsman. There are a number of issues – some philosophical, some practical – that will need to be taken into account in deciding in the fullness of time where the responsibility would lie. As far as the HKMA is concerned, the arguments for and against are, I suggest, finely balanced. One argument holds that a more formal role for the HKMA in this area might create a conflict of interest between our prudential regulation and consumer protection roles.