samchain/econo-pairs-v1 huggingface dataset:
Sometimes it is alleged that monetary policy is impotent in a climate of heavy capital inflows. Claims are also heard that the Central Bank’s monetary policy measures only exert an influence through the exchange rate and have no effect on long-term interest rates, and absolutely not on indexed interest rates. Certainly, a tight monetary stance does put significant upward pressure on the exchange rate, contributing to lower inflation in the short run. Central Bank policy rate hikes also have a very swift effect on the money markets, and interest rates on other instruments with maturities of a few months or years are soon influenced too. Central Bank policy rate decisions also have an impact on long-term interest rates, both indexed and nonindexed. All research in Iceland and everywhere else confirms this, but because the effect is transmitted with a long lag, monetary policy must be forward-looking. Interest rate decisions made today are not transmitted in full to long-term interest rates until one or two years hence. Thus the debate often focuses on the short-term effects of monetary policy, but people need to be patient and bear in mind the impact which does not emerge until well into the future. The Central Bank does not have the slightest doubt that interest rate changes in Iceland ultimately have the same effect as those in other countries, in other words that general economic principles apply just as much in Iceland as anywhere else.

When the conversion from petroleum wealth to financial assets has been completed, the objective will still be to restrict withdrawals so that the real value of the Fund’s capital is maintained - in principle, indefinitely. The Petroleum Fund functions as a buffer against movements in the krone exchange rate when oil prices vary. The cash flow from an increase in oil prices will accrue to the Fund and be invested abroad. In this way, the Fund contributes to limiting an appreciation of the krone and maintaining a stable exchange rate. At times, it seems that participants in the foreign exchange market underestimate the Petroleum Fund’s buffer mechanism. Since summer 2004, the krone, measured by the trade-weighted exchange rate index (TWI), has appreciated by about 5 per cent. The chart shows the exchange rate and the price of oil since 1999. There does not appear to be any clear relationship between the nominal exchange rate and oil prices over time. The krone has appreciated in periods with high oil prices, but the same has occurred when oil prices have been low. The correlation between the oil price and the krone exchange rate has varied over time. Since inflation targeting was introduced in March 2001, the average correlation has in fact been zero. This result is worth noting and indicates that the export of capital via the Petroleum Fund has protected the nominal exchange rate from price fluctuations in the oil market.
Second stage: As mentioned earlier, to get the GMM moment conditions, we need to purge 𝜔𝑖𝑡 from its component observable to the firm. We assume 𝜔𝑖𝑡 follows an AR(1) process so that 𝜔𝑖𝑡 = 𝜌𝜔𝑖,𝑡−1 + 𝜉𝑖𝑡  (𝐴5)  where 𝜉𝑖𝑡 is an idiosyncratic, unobservable (to both the firm and econometrician) shock to technology. This is the part of 𝜔𝑖𝑡 that is assumed to be uncorrelated with optimal input choices and thus forms the basis for the GMM conditions. We know that our 𝑦̂𝑖𝑗𝑡 estimate subsumes both the inputs 𝑣𝑖𝑡 , 𝑘𝑖𝑡 directly and indirectly through 𝜔𝑖𝑡 = ℎ(𝑣𝑖𝑡 , 𝑘𝑖𝑡 ). But since it is consistent, we can express unobserved technology 𝜔𝑖𝑡 as a function of to-be-estimated 𝜷𝑗 : 41  All speeches are available online at www.bankofengland.co.uk/speeches  41  𝜔𝑖𝑡 (𝜷𝑗 ) = 𝑦̂𝑖𝑗𝑡 − 𝑓(𝑣𝑖𝑡 , 𝑘𝑖𝑡 ; 𝜷𝑗 )  (𝐴6)  So, given a 𝜷𝑗 , we can estimate equation (A5) to back out 𝜉𝑖𝑡 (𝜷𝑗 ). In the Cobb-Douglas case, we then have the GMM moment conditions 𝑘 𝐸 (𝜉𝑖𝑡 (𝜷𝑗 ) ( 𝑖𝑡 )) = 0 𝑣𝑖,𝑡−1  (𝐴7)  Note that capital is assumed to be decided one period ahead and therefore should not be correlated with the innovation in productivity. We rely on lagged COGS to identify the coefficients on COGS since current COGS is expected to react to shocks to productivity and hence 𝐸(𝑣𝑖𝑡 𝜉𝑖𝑡 ) is expected to be non-zero.

We are already seeing that technology developed in the petroleum sector serves as a springboard for jobs in the green sector. Turning to my next topic, how are the structural changes in energy markets shaping the outlook for energy prices and inflation? On this, I will be humble and say, that predicting the level of energy prices in the years ahead is difficult. As we have already heard, different aspects of the green transition will affect prices differently, and possibly, with opposite signs. Outcomes will depend on technological developments, the supply of raw materials and minerals and on political decisions related to climate and energy security. In the short to medium term, we should be prepared for a potentially higher frequency of negative, and possibly, more persistent supply-side shocks originating in the energy market. [1] With an increasing share of intermittent renewables in the energy mix and insufficient energy storage systems to act as balancing mechanisms, supply could become more unpredictable. Coupled with low short-run demand elasticities, shortrun fluctuations in supply could potentially trigger large price movements, reinforcing a well-documented characteristic of energy markets. Turning to how movements in energy prices feed into inflation. Although household energy costs make up a fairly small share of the CPI basket, as we all witnessed last year, large movements in energy prices can have a material impact on headline inflation. Energy price changes also have an indirect effect through firms’ input costs.
It is ironic that only when problems in advanced economies led to contagion elsewhere and large number of central banks entered into such swap agreements with the Federal Reserve, did the IMF agree to such an instrument. This also reconfirms the need for greater voice and representation of emerging markets in important international financial institutions (IFIs) as highlighted in the recent G-20 Summit Declaration. While the reform is underway under the IMF, it is only with hope that other fora, including, the FSF will take the issue into consideration more seriously. Let me elaborate further on the importance of having emerging markets participated in the systemically important international fora. I think you all agree at this advanced economies or emerging markets are all prone to sectoral imbalances, which, if left unchecked, can lead to a full-blown crisis, anywhere, any time, when the bubbles burst. The impact of a crisis in an advanced, systemically important country can be much broader and deeper, creating a larger scale of world-wide externality. Emerging markets, unlike others, have had our share of coping with new challenges brought on by this phenomenon as well as those created by us one decade ago. It is, therefore, not only the responsibility of advanced countries to be in charge of global surveillance but also the responsibility of emerging markets to share our views and experiences of how to reform ourselves to be better prepared for greater uncertainty.

The existing regulatory framework was simply inadequate to detect and prevent the brewing problems. At one level, inadequate follow-up framework made it difficult to track where the funds were going. But the heart of the problem lay in the loose supervision and examination system in place. Regulatory waivers were common. And the culture evolved to one that encouraged or condoned excessive risk-taking behavior. Compounding the problem were Thailand’s underdeveloped capital markets. The absence of what Alan Greenspan termed a “spare tire” of finance made bank lending the dominant source of corporate financing. Consequently, viable businesses were trapped in the breaking down of the banking sector’s intermediary role with no way out, and the crisis spiraled into a devastating credit crunch. The most significant implication drawn from this lesson is thus a strong financial sector is essential for a country to sail through financial storms. It is perhaps not a coincidence that Singapore and Hong Kong fared better than many other Asian countries during the 1997 crisis, for their financial systems were, and still are, relatively deeper than the rest. A strong financial sector serves as an absorber for external shocks while a weak and inefficient financial sector aggravates the depth of the problem and prolongs the recovery process. Beyond the “hardware” of the physical and financial infrastructure, the “software” of the ethical issues governing the running of the system is also critical. Tales of businesses being endowed with extraordinary treatments from bankers through their cross-holding relationship are probably still fresh in everyone’s mind.
Jarle Bergo: Business cycles and monetary policy Address by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at a meeting hosted by Handelsbanken and the Centre for Economic Research at NTNU, Trondheim, 21 April 2005. Please note that the text below may differ slightly from the actual presentation. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 20 April, Inflation Report 1/05 and on previous speeches. The references and the  Charts in pdf-format can also be found on the website of the Norges Bank. *  *  *  The Norwegian economy is growing at a solid pace and there are prospects that growth will remain high. The recession was mild after the previous expansion culminated two and a half years ago. The period of relatively high cost inflation in Norway came to an end without production being impacted to the same extent as during the recessions in the early 1980s and around 1990. One of the main reasons for this is probably that low inflation in the 1990s and current monetary policy have anchored expectations of low and stable inflation among economic agents. The need to bring down inflation was the main reason why New Zealand introduced an inflation target for monetary policy, as the first country to do so, at the end of the 1980s. Canada, the UK, Sweden and Australia followed suit later in the 1990s.

Nevertheless, we concur with the message of the Fund that risks are clearly tilted to the downside, and agree that it will be prudent for policymakers to prepare for more adverse outcomes, though we hope such outcomes will not come to pass. It is telling that emerging markets, which have already been responsible for the greatest part of the world’s economic growth, will play even more significant role in cushioning this downturn. We note that even at the slower growth rates projected, emerging markets are still expected to expand at a healthy 6.7 percent this year, and will sustain that pace in 2009. Developing Asia can be expected to see even more robust growth, in excess of 8 percent, led by China’s near double-digit rate of expansion. It is heartening to note that self-sustaining domestic demand is expected to be a greater feature of the expansion of individual Asian economies, along with greater intra-regional trade. 3. We welcome the ongoing correction of global imbalances we have experienced thus far. While recognizing that there is still a risk of disorderly unwinding of these balances, we are cautiously optimistic that responsible actions by all parties will prevent such an event. In our region, we have significant adjustments in domestic demand, underpinned by improved economic fundamentals. As a result, the surplus countries in our region continue to experience a gradual but significant decline in their current account balances, partly due to the acceleration in the rate of exchange rate appreciation in the region.
In 2015 only 4% of CSRs were fully implemented, down from 7% in 2014. In some countries excessive economic imbalances 4  BIS central bankers’ speeches  persist and could harm other Member States. More can be done to improve national implementation and I see a lot of merit in the IMF's proposal that CSRs should be linked to outcome-based benchmarks that are concrete, measurable, and clearly linked to the ultimate reform objective[28]. The dismal implementation record of the CSRs nevertheless suggests that a governance framework that envisages European economic policy priorities being legitimised and implemented at national level has its limits. Looking forward, we will need to engage in a process at European level, based on shared institutions, that provides both economic resilience and the appropriate legitimacy. In such a process, consensus would be needed on (i) the policy areas that are crucial to preserve the resilience of the euro area, and on (ii) designating those policy areas as shared competences with democratic legitimisation at European level. And as I have said before, getting there will require both economic and political convergence. The success of the Single Market is one of the few uncontroversial achievements of the EU. It has shown that shared competences can be used to implement economic policies that lead to greater prosperity in each country and, at the same time, ensure greater resilience of the euro area and the EU as a whole. We should build on it if we want to make further progress.

The update of our Market Intelligence Charter and the UK Money Markets Code, published today, will embed diverse outreach into our working practices and help make diversity within financial markets a core standard of best practice. The Charter sets out our aims and ambitions of talking to a diverse range of contacts and affirms our commitment to open engagement, with an emphasis on challenge and diversity of thought.9 The updated Code, which the FCA have recently again recognised as an industry standard, puts the expectation to promote and develop a diverse team upfront, alongside other core principles of best practice, highlighting the benefits of accessing a wider range of skills and thinking. 10 This approach is also being in embedded in our outward-facing markets committees. We currently have two main committees: the Money Markets Committee and the FX Joint Standing Committee. We have been working with members from both committees to diversify their membership for some time now: including working to ensure women in senior roles are represented; and that the committees see a wider range of presenters at different stages of the career. This is yielding results: specifically, female representation – which is one aspect of diversity that has been historically lacking on many senior-level committees – is now approaching half on the UK Money Markets Committee, and has climbed to around a third for the FX Joint Standing Committee in the past 18 months. These changes were driven by the Bank but importantly with the full support of the external members.
Similarly, the Term Securities Lending Facility (TSLF)—which involved the swap of Treasury collateral from the Federal Reserve against lower-quality collateral held by primary dealers—was introduced in large part because collateral swaps, unlike cash loans, did not affect the amount of reserves in the banking system. My overall point is that broad-based, open-ended lender-of-lastresort facilities are more difficult to accommodate in a corridor system because of the need to drain any reserve additions to keep the federal funds rate close to the FOMC’s target. I see this as an important shortcoming of the pre-crisis corridor regime that does not get sufficient attention. Having the ability to introduce broad and credible lender-of-last-resort backstops—well secured by pledged collateral—can be critical when confidence falters and financial stability is at risk. Private sector participants are more likely to continue to engage with their counterparties—and to borrow and lend—when they know a central bank backstop will be available if economic and financial conditions deteriorate. A corridor regime could cause the Federal Reserve to delay or avoid providing such backstops, which could increase financial stability risks by causing lenders and borrowers to disengage with one another earlier.12 Although the FOMC has not made a final decision about a future framework for implementing monetary policy, meeting minutes confirm that participants recognize the advantages of a floor system. As the November 2016 FOMC minutes note: “Meeting participants commented on the advantages of using an approach to policy implementation in which active management of the supply of reserves would not be required….

Making such a change now might be viewed as “moving the goal posts,” given the persistent shortfall of inflation in recent years relative to the objective. And, doing so now might imply a greater tolerance for missing inflation to the low side in an asymmetric way. That would not be desirable at a time when inflation expectations are, if anything, too low, rather than too high relative to the FOMC’s objective. To sum up, the economy is broadly in a good place and the short-term economic outlook remains favorable. On a personal level, I am pleased that I will be leaving my current position at a time when the FOMC is likely to be very close to its employment and inflation objectives— recognizing, of course, the terrible damage of the financial crisis and the long time it has taken to get here. Uncertainty about trade policy and the fact that we are now on an unsustainable fiscal path, however, have raised the longer-term risks. With respect to monetary policy, there are a number of important choices the FOMC will need to make in the years ahead. I have outlined some of my preferences today: continuing with the current floor system for the implementation of monetary policy, and some of the steps that we could take to reduce the risk should interest rates return to the effective lower bound in the future. Thank you for your kind attention. I would be happy to take a few questions.
The statement references “strong” labor market conditions, “strong” job gains, and a “strong” rate of growth in economic activity, household spending and business fixed investment. 1 Although this may suggest that we really need to consult a thesaurus, at least we can’t be accused of ambiguity. The Fed has attained its dual mandate objectives of maximum employment and price stability 1/5  BIS central bankers' speeches  about as well as it ever has, with most indicators pointing to a very strong labor market indeed— including an unemployment rate below 4 percent—and an inflation rate very near our longer-run goal of 2 percent. With fiscal stimulus and favorable financial conditions providing tailwinds to the economy, the outlook is for more of the same. Let me put some hard numbers to that: I expect real GDP to increase by 3 percent this year and by 2.5 percent in 2019. This above-trend pace of growth should lead to continued solid job gains and further declines in unemployment. I expect the unemployment rate to fall slightly below 3.5 percent next year, the lowest level in nearly 50 years. In keeping with the strong economy, I expect price inflation to edge up a bit above 2 percent, but don’t see any signs of greater inflationary pressures on the horizon. And, I continue to expect that further gradual increases in interest rates will best foster a sustained economic expansion and achievement of our dual mandate goals.

The second pillar of the ECB's strategy ensures that the interplay between supply and demand in the real economy is sufficiently taken into consideration when evaluating the risks to price stability. It comprises a variety of predominantly non-monetary factors, which are relevant for future price developments. Some of the factors of the second pillar can be especially relevant in the short term, for example the development of oil prices. For monetary policy decisions, it is important to know whether, for example, shocks originate from the supply side or from the demand side of the economy, whether they exert a temporary or permanent influence on prices, or whether they result from a domestic or an external source. As we have experienced in the past few months, an oil price shock, which is an external shock from the supply side, can exert a significant direct influence on consumer prices. In such a situation, the central bank has to assess whether this direct effect will remain temporary or whether it will translate into a more permanent impact on prices. This depends to a large extent on the ability of central banks to keep inflation expectations low. Other indicators of the second pillar, for example the development of labour costs, have a more medium-term content. Under the second pillar of the strategy, the production of macroeconomic projections for real GDP growth and inflation enables some of the factors considered to be structured and summarised.
BIS central bankers’ speeches  Despite these attractive features, I do not believe that simple policy rules can take the place of in-depth analysis of economic and financial market conditions. While simple policy rules provide useful benchmarks to policymakers, their very virtue – their simplicity – is also a significant shortcoming. Policy rules cannot capture all of the information that is relevant for policymaking. In particular, such rules do not capture the fact that the linkage between the federal funds rate and financial market conditions can be very loose. This is a critical shortcoming because this looseness affects the stability of the relationship between monetary policy and economic outcomes. If the relationship between monetary policy, financial conditions and the real economy were stable over time, then following a relatively simple and unchanging policy rule would likely generate acceptable results. However, if the transmission of monetary policy to the real economy is more variable and uncertain, as I believe it is, then an approach that takes this explicitly into consideration will be more effective. The third implication that stems from the fact that financial market conditions matter in the conduct of monetary policy pertains to the so-called “Fed put” with respect to equity prices. The notion here is that because the Federal Reserve cares about unanticipated and undesired changes in financial market conditions, the Fed will respond to weakness in equity prices by easing monetary policy – essentially providing a put to equity investors.

Thus, how much one pushes on the short-term interest rate lever depends, in part, on how financial market conditions respond to such adjustments. Imagine driving a car where the connection between the gas pedal and the engine speed was variable and uncertain. The driver would have to constantly monitor and adjust the pressure on the gas pedal to achieve the desired speed. Similarly, we will have to monitor and adjust short-term interest rates to achieve financial market conditions consistent with achieving our labor market and inflation objectives. All else equal, less responsiveness implies larger interest rate adjustments and vice versa. Quickly, let me give two examples that illustrate how variable this linkage can be. First, during the 2004–07 period, the FOMC tightened monetary policy nearly continuously, raising the federal funds rate from 1 percent to 5.25 percent in 17 steps. However, during this period, 10-year Treasury note yields did not rise much, credit spreads generally narrowed and U.S. equity price indices moved higher. Moreover, the availability of mortgage credit eased, rather than tightened. As a result, financial market conditions did not tighten. As a result, financial conditions remained quite loose, despite the large increase in the federal funds rate. With the benefit of hindsight, it seems that either monetary policy should have been tightened more aggressively or macroprudential measures should have been implemented in order to tighten credit conditions in the overheated housing sector.