samchain/econo-pairs-v1 huggingface dataset:
There has long been acceptance of the fact that central banks should be free to cut or raise rates in pursuit of domestic policy objectives, even though such actions might indirectly impact exchange rates. Now that some central banks are constrained by the zero lower bound, it seems only natural that this understanding should carry over to domestic asset purchases for domestic policy purposes. Such purchases represent just another channel to influence local financial conditions and thereby spur growth. This is quite different from deliberately targeting exchange rates through exchange market interventions or other means, which could indeed be problematic. BIS central bankers’ speeches  3  The current system of market-determined exchange rates among the major advanced economies brings to mind the old quip about democracy being the worst possible system...except for all the others. While it is hardly perfect, it does work to smooth adjustments across countries facing different macroeconomic circumstances and provides domestic policy makers with important and necessary room for maneuver. Let me close with a few thoughts on the emerging world, against the backdrop of trends and challenges facing the mature economies. As we all know, the role of the emerging markets has changed dramatically over the last decade and a half. The emerging market economies are now an increasingly important source of dynamism, stability, and profitability for the world economy and financial system.

And while the ECB’s (European Central Bank) framework is less focused on quantitative targets, there is little doubt that the ECB’s willingness to expand its balance sheet through lending and through the OMT (Outright Monetary Transactions program) has been a key support to stability. This activism has some observers asking – with some justification in my view – whether central banks are trying to do too much. Concerns are being raised as to whether price stability and financial stability are being put at risk, and about potential spillovers into currency markets. Monetary policy is, after all, a blunt instrument. It supports investment and consumption in the real side of the economy by stimulating financial activity, by lowering borrowing costs and boosting financial wealth. But, as we have learned the hard way, easy monetary and credit conditions are also the stuff out of which credit excesses and bubbles can form So the question many central banks face is whether the benefits of further easing are worth the potential costs: in essence, will we get enough risk-taking on the real side of the economy, before we get too much on the financial side? Of course, this is not a static calculation. Sound structural policy can improve the odds that monetary stimulus feeds through to the real economy. After all, firms’ decisions to invest, hire more workers and expand their operations depend not just on the cost and availability of funds, but also on the opportunities and the uncertainties in the business environment.
Parallel to the weak outlook in economic activity, core inflation indicators in developed countries maintain their historically low levels in the third quarter of 2010 (Figure 3). BIS Review 159/2010  1  In line with the outlook I have summarized, the probability that many developed economies, which are already pursuing exceptionally loose monetary policies, would adopt a second phase of monetary easing has increased. This has strengthened the investors’ inclination towards risky assets and therefore has boosted capital inflows to emerging markets, leading to currency appreciation in these countries accompanied by marked increases in commodity prices. Ample global liquidity and accelerated capital flows that are driven by the increasing search for yield have affected many emerging markets, including Turkey. Favorable developments specific to Turkey have further exacerbated these effects. In particular, a better-than expected recovery in economic activity, indications of a possible upgrade from credit rating agencies, an ease of political uncertainty with the completion of the referendum process, and the signal given by the updated Medium Term Program (MTP) that the fiscal discipline would be maintained, have all contributed to Turkey’s relatively better performance. Turkey’s risk premium indicators performed better than many countries and continued to remain below pre-crisis levels (Figure 4). Consequently, interest rates have declined, the stock market soared, and the Turkish lira strengthened (Figure 5). 2  BIS Review 159/2010  1.

Durmuş Yilmaz: Recent economic and financial developments in Turkey Speech by Mr Durmuş Yilmaz, Governor of the Central Bank of the Republic of Turkey, at the press conference for the presentation of the Inflation Report, Ankara, 26 October 2010. *  *  *  Distinguished Guests and Members of the Press, Welcome to the press conference held to convey the main messages of the October 2010 Inflation Report. The report typically summarizes the economic framework addressed in monetary policy decisions, elaborates global and domestic macroeconomic developments and presents the medium-term inflation forecasts, which have been revised in view of previous quarter developments, along with the monetary policy stance. Before moving on to the Central Bank’s assessments of inflation outlook and economic activity, which I will share with you in detail shortly, I would like to summarize the current global conditions that continue to be determinant of the domestic economic outlook. Data released in the third quarter indicate that the recovery will be quite slow and gradual albeit a second contraction in global economic activity is not very probable. The marked decoupling between the developed and developing countries in terms of growth dynamics persisted through the second quarter; where global growth continued to be driven by developing countries (Figure 1). Meanwhile, the persisting negative outlook in the labor markets of developed countries confirms the slow pace of rebound in these economies on one hand; and leads us to believe that the improvement in employment conditions will take a long time, on the other (Figure 2).
Overall, taking the APP, negative rates and rate forward guidance together, ten-year sovereign bond yields would have been almost 1.4 percentage points higher in 2018 without those measures. These yield compressions have been transmitted further to an easing of financing conditions for non-financial corporations and households. [30]  Interpreting signals from a flattening curve under central bank asset purchases The significant effect that our monetary policy had on the yield curve helped to improve financing conditions and ease the monetary policy stance. At the same time, the strong impact of our own policy makes it more difficult to read the information that the yield curve may incorporate regarding the outlook for the economy. An important and currently relevant example is the question as to what extent a flattening yield curve signals a weakening of the economic outlook. There has been a considerable body of literature devoted to this question. An important strand focuses on the negative correlation between the slope of the yield curve and the probability of future recessions, and the possible economic mechanisms underlying such a pattern. I will just briefly highlight how important it is to take our own action into account when interpreting the signals reflected in the yield curve. For the euro area, and for Germany over earlier years, we see indeed the regularity that recessions tend to have been preceded by a flattening yield curve (see Chart 2 again).

On top of QE, we perform with our policy interest rates, our forward guidance and the provision of liquidity to financial institutions. 1/ On QE, the academic literature provides consistent evidence that the impact of asset purchase programmes on the yield curve and asset prices is primarily driven by the total stock of assets held by the central bank (the so called “stock effect”), rather than by the flow of transactions conducted over a given period (“flow effect”) [slide]. Banque de France studies of the effects of the PSPP find that holding a stock of bonds equivalent to 10% of GDP lowers the 10-year yield by about 45 bps in the euro-area.v These results imply that our current programme lowers the 10-year euro-area government bond yield by about 100 bps. These estimates are of similar magnitude to results obtained for evaluations of the programmes conducted in the United States and the United Kingdom.vi In any case, the Eurosystem will remain a major buyer of euro-denominated bonds over the coming years, thanks to our reinvestment commitment, which we took in December 2015 and which was perhaps not widely enough noticed:  Page 5 sur 8 the repayments that we will obtain when bonds reach their maturity date will be fully reinvested, thus keeping the size of our asset holdings unchanged and at a high level. In addition, the maturity of such reinvestments can be calibrated, if need be, to support the duration that we will extract from the market.
Turning to economics, the educational pyramid could not be more different (Figure 2). It is more diamond than pyramid. Economics is not a compulsory part of the school curriculum at any stage. Up to age 16, economics forms only a very small part of PSHE (Personal, Social and Health Education), a voluntary part of the curriculum. Surveys suggest that PSHE provision is patchy and has decreased significantly in recent years. 56  Among early-years children, there is little foundation for learning everyday economics. 57  Beyond 14, students at some schools can opt to study economics. In practice, only around a third of schools offer this option. As a result, in 2016/17 only just over 9,000 students across the UK studied GCSE economics, typically between the ages of 14 and 16. That is a tiny 1.4% of the student population in that age range. These numbers have been flat over the past decade. More than a decade into their educational lives, then, the vast majority of students have had virtually no exposure to economics and business. Beyond age 16 the number of schools offering, and students studying, economics picks up - the pyramid begins to widen. Around 33,000 students completed A-Level economics in the UK in 2016/17, typically studying between the ages 16 to 18. Encouragingly, these numbers have swelled, by around 70%, over the past ten years. That remains only 4.3% of the total number of young people in this age range.

In this respect, I would like to thank the organization committee for their efforts in bringing these very interesting and enlightening studies under this conference. I wish the conference a complete success and I would like to thank all our guests for their participation. 2  BIS central bankers’ speeches
The strong level of economic activity and the inflation forecast indicate, however, that it will again be necessary to gradually shift monetary policy onto a less expansionary path to ensure that inflation remains close to target. 6  BIS Review 33/2006

First, the efficiency of a credit institution introduces an additional condition; the issue is not only to maximise output by minimising costs, but also not to alter the institution’s risk profile. Here, then we have three elements output, costs and risk. This idea factors in significant constraints and makes it necessary to focus on improved efficiency as a balanced process in which attention must be paid to a series of management elements that cannot be run down in cost-cutting drives. For example, no clear efficiency gain is achieved if it is done at the expense of increasing operational risk. Second, in the financial sector efficiency can be analysed from a dual perspective: from that of the system as a whole, a macro perspective, and from that of the individual institutions, a micro perspective. The financial system and intermediation I shall refer firstly to the financial system as a whole, which enables saving to be channelled from agents wishing to lend funds, because they have a surplus of them, to others who wish to borrow funds, since they are lacking financing. Adding to this important function performed by the financial system is that of allowing the transmission of risks to those who have a greater wish or capacity to assume it. This is especially important in an environment of uncertainty. An efficient financial system will enable a greater volume of funds to be channeled towards productive investment and therefore will help to boost economic growth and to achieve greater levels of well-being.
On the assumption that the three-month Libor remains unchanged at 0.75%, annual inflation is forecast to stand at 0.5% in 2006 and reach 1.4% in 2007. Inflation prospects for the medium term now look more positive than they did at the March assessment. A correction to the expansionary monetary policy pursued by the SNB for a long time now will be necessary if the economic outlook improves. Should the Swiss franc appreciate rapidly, the Swiss National Bank will respond appropriately. What were the most important factors that led to our decision to leave the three-month Libor rate unchanged? Before answering this question, I would like to briefly outline the situation we are facing. I will begin by presenting the economic environment, and then go on to describe the monetary situation. As far as economic activity is concerned, we have revised our evaluation downwards since the last monetary policy assessment. In the final quarter of 2004, the Swiss economy slipped slightly, accompanying a rise in the price of oil and a decline in the dollar in the period from October to December. Both of these factors also had an unfavourable impact on the European economy. Contrary to the expectations expressed at our last monetary policy assessment, economic activity in Switzerland remained restrained in the first quarter. Despite a slight increase in domestic demand, GDP stagnated compared with the previous quarter. This disappointing result was mainly attributable to export developments. Companies were faced with slack demand and consequently limited their volume of investment.

This means that an increase in the Libor target range appears less urgent. Third, the level of uncertainty has risen. The economic outlook in Europe is more difficult to assess than it was in March. Although the price of oil declined in April and May, it rose again significantly in June, and high prices in the oil market could persist for some time to come. In addition, the decline in the level of long-term interest rates is not very consistent with a recovery in the economy. I will now briefly outline our new forecast for inflation. The graph depicts the current and the previous forecasts. The dashed red curve represents the new forecast, which covers the period from the second quarter of 2005 to the first quarter of 2008. The dash-dotted green curve shows the forecast presented in the last monetary policy assessment. Both forecasts are based on the assumption of a three-month Libor rate of 0.75%. The line representing the new inflation forecast begins slightly above the previous forecast, dropping significantly below it from next year onwards. The decline in inflation rates this year is due to a stabilisation in the price of oil. The lower level of inflation next year is attributable to weaker growth in economic activity. In 2007, inflation will rise rapidly because of the high level of utilisation of resources and the high level of liquidity. This means that, should the three-month Libor rate remain unchanged at 0.75%, inflation would reach 2.4% by the end of the forecasting horizon.
Chart 5 plots a measure of global capital market integration (external assets/GDP) against a measure of the incidence of crises – all crises and banking crises (Reinhart and Rogoff (2011)). Integration appears to have been associated with an increase in the incidence of crisis over the past couple of decades, perhaps especially banking crises. It is not just the incidence, but also the prospective size of crises and their spill-over consequences that has increased. Chart 6 provides one perspective on that. It looks at the scale of IMF programmes over time, normalised by the borrowing country’s quota. Two features are striking: first, the increased incidence of programmes; but second, more dramatically, their increased scale. Academic evidence has long pointed towards important spillover effects from national or international disturbances (Obstfeld and Rogoff (1995), Forbes and Warnock (2012) and Fratzscher (2012)). But recent evidence points towards more potent contagion channels. For example, Rey (2013) finds evidence that a common global risk factor drives asset prices and cross-border capital flows, for both advanced and emerging economies. It is worth putting under the microscope these shifting patterns in global financial market correlations, especially over the most recent period. Charts 7–9 plot correlations between long-term bond yields, equity prices and investment grade corporate bond spreads respectively in the US, UK and the euro-area over the past few decades. Two features stand out. First, there has been a steady rise in the degree of co-movement in asset prices over time. Take government bond yields over the past 50 years.

28 See, for instance, Blanchard, Dell’Ariccia, and Mauro (2013). Examples of others who have advocated this are Ball (2014), Krugman (2014) and Rosengren (2015). Even Janet Yellen said during her time as chairman of the Federal Reserve that the question of whether the inflation target should be raised was “one of the most important questions facing monetary policy around the world in the future” (Federal Open Market Committee, 2017, p. 14). 13 [24]  pears to be the case when looking at historical data. This could lead to greater uncertainty, which makes it more difficult for households and companies to make economic decisions. 29 Surely, at a sufficiently high level of inflation it will be difficult to claim that inflation is still low and stable. But if there is confidence in a target of 3 or 4 per cent in the same way as for a target of 2 per cent, there is no obvious reason why inflation should vary more. The historically negative covariation between the level and stability of inflation most likely reflects the fact that periods of high inflation have also been periods in which there has been no clear anchor for inflation in the form of an inflation target. Whether an inflation rate of 3 or 4 per cent can still be regarded as low is a question of judgement. Personally, I think one can say it is. I will return to the proposal to raise the inflation target shortly.
The policy rates of many of Norway's main trading partners are now at their highest levels since the 2008 financial crisis. Chart 6: Policy rates have been raised more abroad than in Norway Since last spring, foreign interest rates have risen more than Norwegian interest rates. Combined with the turmoil in financial markets, this has likely contributed to the krone depreciation. Norges Bank is mandated by the Ministry of Finance to carry out the foreign exchange transactions necessary under the petroleum fund mechanism. In the current period, Norges Bank's krone sales reflect the sizeable foreign currency revenues earned by oil and gas companies owing to high gas prices. The companies have converted large amounts of foreign currency into NOK for tax payment purposes. Norges Bank, on behalf of the government, will convert the portion of government petroleum revenues in NOK that is not spent via the central government budget back into foreign currency, which is then deposited in the Government Pension Fund Global. The transactions are planned and smoothed over the year and are announced ahead of each month. These currency conversions are not an element of monetary policy. Chart 7: The krone has depreciated Norway has a floating exchange rate. This means that the policy rate can be set at the level appropriate for the outlook for the Norwegian economy, and we have room to practice flexible inflation targeting, which also enables monetary policy to give weight to the aim of maintaining high employment.

In 2022, Norges Bank decided to raise the countercyclical capital buffer rate for banks to 2.5 percent, effective from March 2023, which brings the rate back to its pre-pandemic level. Norges Bank continuously and closely monitors financial market developments and has a contingency framework for taking measures required to safeguard financial stability if needed. Let me conclude. The current high rate of inflation follows a long period of low and stable inflation in our part of the world. Some of the driving forces that kept inflation low in the decades before the pandemic may be going into reverse. Globalisation has been met with gradually growing opposition. Demographic trends are changing. Combined, this could make the job of keeping inflation low more demanding. 4/5  BIS - Central bankers' speeches  The global economy will increasingly be impacted by climate change and the need to reduce emissions. Understanding the economic effects of climate change and the energy transition is essential for making forecasts and the right trade-offs in the conduct of monetary policy. This is therefore defined as a focus area in Norges Bank's Strategy 2025. The main contribution monetary policy can make to the transition is to ensure low and stable inflation. A flexible and forward-looking inflation targeting regime, where we look through short-term inflation fluctuations, is a good basis for addressing the structural changes we are facing. A small open economy like Norway will be exposed to shocks, as we have acutely experienced in recent years.
Figure 10  CPI inflation (*)  CPIEFE inflation (*)  (annual change, percent)  (annual change, percent)  6  6  6  6  5  5  5  5  4  4  4  4  3  3  3  3  2  2  2  2  1  1  1  1  0  0  0 11 12 13 14 15 16 17 18 19 20 Sep.18 Report  0 11 12 13 14 15 16 17 18 19 20 Jun.18 Report  (*) Gray area shows forecast as from third quarter of 2018. Sources: Central Bank of Chile and National Statistics Institute (INE). 19  Figure 11 Characteristics of debt issued by companies reporting to the FMC (*) (percent of GDP)  7 6 5  7  Accounting in CLP Accounting in USD  4  6 Mismatch > 10% Mismatch < 10%  5  4  3  3  2  2  1  1  0  0 Private enterprises State-run enterprises Private enterprises accounting in USD accounting in CLP  Other  (*) Information up to 2017. Source: Central Bank of Chile using SBIF and FMC information. 20

In the case of Asia, the sharp devaluation and swift recovery in exports led the Asian economies to become addicted to large volume of export at low prices. And, in the case of Thailand, with little incentive to invest in research and development to raise the products’ value and enhance human capital, the average growth of labor productivity3 had trended down from the 1990s to 2000s. Ladies and gentlemen, This brings me to my third part on the lessons from the Asian financial crisis. I would like to offer three reflections that may not necessarily pertain to Europe but may provide food for thought for policymakers. First, conventional policy prescriptions may not be appropriate for unusual circumstances and there is no one-size-fits-all solution. Asia was a case in point of ill-timed austerity measures. Public sector debt in Thailand then was less than 15% of GDP; yet the policy prescription for Thailand was to tighten fiscal policy and maintain tight monetary policy, resulting in (interbank) interest rate rising from 10% at the beginning of 1997 to over 20% at the end of 1997. With large private external debt beyond the ability of the country to service, a way out should have been debt restructuring with international creditors to give the country a breathing space and avoid the painful shock from the sharp reversal in capital.