samchain/econo-pairs-v1 huggingface dataset:
Forward guidance gave households and businesses confidence that Bank Rate would not be raised at least until jobs, incomes and spending were growing at sustainable rates. Guidance encouraged businesses to hire and spend, and helped keep expected interest rates low, even as the economy recovered strongly. In parallel, we encouraged banks to continue repairing their balance sheets. Changes to the Bank’s liquidity policy further supported lending. The core of the financial system is now on a sound footing and making an increasingly important contribution to the recovery. We are now faced with the challenge of turning that recovery, which has steadily gained momentum and breadth over the past year, into a durable expansion. To do so, we need balance. Its absence can have serious consequences. One has only to look back to 1931 when Britain’s economic prospects were strained by high unemployment, a large budget deficit and a deteriorating balance of payments. In the ensuing crisis sterling was forced off the gold standard and the government of the day resigned. BIS central bankers’ speeches  1  And the Governor? With the uncanny foresight of a central banker, Montagu Norman had already left the scene “to get a bit of rest [in Quebec]”, he said, “for I have had a very hard time of it lately and I have not been so well as I would like to be.”1 However tempting, I will lean on Canada not for restoration but for a nautical analogy to describe how we can address the challenges we now face.

Set up in 1952 under the auspices of the Banco de México and with the support of six other founding central banks (the central banks of Chile, Colombia, Cuba, Ecuador, Guatemala and Honduras), CEMLA has for seven decades promoted debate over, and a better understanding of, important monetary and financial matters for the region’s monetary authorities, and helped share best practices in the different areas of central banking among all of its associate members. CEMLA currently has 31 associate members and 20 collaborating members, and has established itself as the foremost institution in Latin American central banking. The Banco de España has worked closely with CEMLA since joining as a collaborating member in 1965. After participating in CEMLA’s governing bodies in an observer capacity for two decades, last year the Banco de España became an associate member, thus reinforcing its commitment to the organisation. Allow me to share with you now, in these opening remarks, a few brief thoughts on the need to reinforce multilateral cooperation in the current geopolitical context to which I have just referred. Russia’s attack on Ukraine is taking an appalling toll in terms of lives, destruction and displaced persons. Of course, it is also having an economic impact, one that is putting our responsiveness to the test. The war broke out at an already delicate juncture for the world economy, with the various regions emerging from the pandemic at different speeds and amid much uncertainty, inflationary tensions and global production chain disruptions.
Chart 4: Investment consistently weaker post-crises Average financial recession Cumulative change (per cent)  Average normal recession  20 15 10 5 0 -5 0  1  2  3  -10  4  5 Years  -15 -20 -25 -30 Source: Jordá, O., Schularick, M. and Taylor, A. (2013), ‘When Credit Bites Back’, Journal of Money,Credit and Banking, Vol. 45, Issue s2. Notes: The chart shows the cumulative change in per capita investment. The grey shaded area shows a 95% confidence interval around the average normal recession. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Chart 5: UK, US and euro-area capital overhangs being worked off  UK capital to output ratio  Euro area capital to output ratio Euro area trend capital to output ratio US capital to output ratio US trend capital to output ratio Per cent 340  Per cent 130  UK trend capital to output ratio  120  320  110  300  100  280  90 80  260  70  240  60  220  50 1995 1999 2003 2007 2011 2015  200 1995 1999 2003 2007 2011 2015  Sources: BEA, OECD, ONS and Bank calculations.

Moreover, with domestic inflationary pressures, particularly wages and unit labour costs, still subdued, it was appropriate to leave the policy stance unchanged at that time. Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional. The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months. III. Conclusion After an expansion that has relied overly on consumption, the rotation to other components of demand, particularly investment, will be important to sustain momentum. Stronger investment will support productivity growth, stronger wages and higher welfare for all. It will also give monetary policy more traction. Globally, there are signs that such a rotation may be beginning. Although some UK–specific uncertainties might limit the UK’s participation in that pickup, the Bank of England will make its contribution by pursuing determined policies within well-established frameworks in order to maintain monetary and financial stability.
A more co-operative approach, in which surplus countries instead eased fiscal policy, and allowed their exchange rates to appreciate, would lead to better outcomes all round. But that’s hard to achieve when countries act individually because they don’t take into account the effect of their actions on others7. I don’t see that, in either respect – whether it’s the frequency of conflicting shocks or the extent of crosspolicy spillovers – the situation is as serious for the money/macro-pru interaction. Regarding the first, my guess is that outright conflicts between the two sets of objectives are unlikely to occur that frequently. Indeed I suspect that, given the sorts of shocks that tend to hit the economy, the two policies will more often be complementary. Conventional aggregate demand shocks would tend to push inflation and credit growth in the same direction. The same goes for independent shocks to the supply of domestic credit: expansions in lending are more likely to occur alongside periods of relatively strong economic growth and rising inflationary pressure than are economic downturns. In that case, and to the extent there really are cross-policy spillovers, the two policies will tend to help rather than hinder each other. Broadly speaking I think this is exactly what’s happened over the past few years. In Britain one sometimes hears that the historically low interest rates after the financial crisis have been fuelling “unsustainable booms” in asset prices and in lending.

Even if she’s not that sure of her initial 8% estimate – the blue line illustrates the case where the standard deviation around her prior is 2% points – it’s still likely to take more than 100 years for the observer’s central estimate to fall even half way to the truth (i.e. to 6%). If the observer’s wrong but confident (the red line illustrates the case with a 1%-point standard deviation around the initial 8% prior) one would expect it to take well over half a millennium to get to that point. King John and the  Source: Bank calculations. barons might have tightened prudential regulation in the Magna Carta and her acknowledgement of its benefits would even now be somewhat grudging. This is, as I say, a wholly unrealistic experiment because we get to see far more than the simple occurrence (or non-occurrence) of a financial crisis. Our sceptical observer would presumably be aware of the prudential legislation and, more importantly, its effects on things that relate to financial risk (asset valuations and banks’ capital ratios, for example). That information would allow a much faster updating of estimated risk than in Chart 9. In the real world, the information set available to the FPC, and by which its performance can be judged, is richer still. Having seen several such events, in many countries, we know quite a bit about what typically precedes them. Stress-testing gives us an extremely useful and powerful way to expand our knowledge about the impacts of “tail events”.
A sudden depreciation normally tells us something about the probable future path; it probably reduces the chances that at the end of a given forecast period the krona will have reached the higher rate that an earlier assessment indicated; for one thing, that would require a very much faster appreciation than envisaged earlier. The appraisal of a given appreciation or depreciation depends on what caused it, partly because this may have consequences for its duration and its impact on inflation. A weaker exchange rate accompanied by an economic slowdown need not appreciably change the picture of inflation. A depreciation that is a step in an adjustment to a higher expected rate of inflation is a different matter. An upward shift in inflation expectations in a wide sense affects the picture of inflation directly. Various persistent portfolio adjustments can also give rise to a revision of inflation prospects if the exchange rate is affected more permanently. A further interpretation of a depreciation arises when it occurs in conjunction with generally increased uncertainty in the global financial markets; such a situation usually involves an extensive flight to large currencies and to currencies with a historical record of stability. This source of exchange rate movements is usually temporary. The krona’s weakening early this summer, after the Riksbank had presented the year’s second Inflation Report, was probably due to a combination of slowing export activity, portfolio adjustments and some upward revision of inflation expectations. Current inflation had been notably high in the late spring.

With a flexible exchange rate regime, there is nothing new about some depreciation in connection with a cyclical downturn. Numerous examples can be cited from all over the world. Basically, in a small, open economy the exchange rate often functions as a sort of shock-absorber. The problem today is that the krona’s depreciation has occurred from a level that was already weak. This amounts to a further appreciable lowering of Swedish manufacturing’s relative costs and thus an increased profit share. Our experience from the 1970s and 1980s has shown that a weak exchange rate can generate inflationary tendencies. Let us not forget what happened in recent years. When the krona weakened in connection with the crises in Mexico, Asia and Russia, Swedish exports recovered quickly and strongly. During the autumn of 1998 exports dropped, order inflows were weak and forecasts where quickly revised downwards; but just a few quarters later production for export was booming again. So it is reasonable to expect that sooner or later, although just when is not clear, Swedish exports will pick up this time as well. But the terrorist attacks have probably postponed the recovery and perhaps even accentuated the slowdown in the short run. It is important to keep an eye on the exchange rate as well as economic activity. On the domestic scene there are some bright spots. Household disposable income, for instance, looks like rising strongly next year.
The medium and longterm inflationary threat of this large amount of liquidity is limited because we will be able to absorb it rapidly, by slowing our lending or by issuing SNB Bills, as soon as confidence returns to the markets. However, liquidity accumulated by the banks could give rise to excessive creation of money through a massive expansion of bank credit. In May, growth in the narrow monetary aggregates, which are very sensitive to changes in the rate of interest, exceeded 40% for M1 and 30% for M2. In essence, this strong rate of growth reflects a preference on the part of the general public for the most liquid monetary assets over time deposits, due to financial uncertainty and the fall in interest rates. The M3 aggregate, which is not affected by these substitution effects, continued growing at a more moderate rate of 4.2% in May, which shows that, at present, created central bank money is confined at the interbank level and has not been transmitted to the rest of the economy. Monetary policy needs to ensure that the level of the monetary aggregates does not become excessive over a longer period. The indicators we are monitoring show that this is not currently the case. Inflation and inflation risks Inflation developed in line with our expectations. In the first quarter it was zero, while we were anticipating 0.1%. Overall, our forecasts are unchanged for the current year, with inflation remaining negative for the rest of 2009.

•  Core inflation also expected to rise. Core Inflation should stay around current level before rising from Q4 15. MAS Core Inflation – which excludes accommodation costs and private road transport costs – remains positive. •  However, it eased to 0.8% in first five months from 1.9% last year. •  For 2015, core inflation is expected to be in lower half of 0.5–1.5% forecast range. 16. Core Inflation should rise gradually from Q4 onwards and reach close to its historical average in H2 2016. •  Impact of lower global oil prices will wear off going into 2016. •  Effect of budget measures to help households cope with costs of healthcare and education will also wear off  •  And some recovery in food prices. 17. More fundamentally for inflation, our labour market remains tight. •  While wage pressures and pass-through from wage cost to prices have both been modest this year, there is every possibility they could pick up in 2016. •  Resident unemployment rate is near 17-year low  •  Job vacancy rate at its highest level over same period  •  As long as economy grows close to its potential rate, wage pressures can build up quickly. Second reason why we cannot be said to be in deflation is that most items in CPI basket continue to experience price increases 18. Slightly more than half of CPI-All Items basket and three quarters of Core CPI are experiencing moderate price increases.
Still, further steps could be taken to improve productivity levels and increase the employment rate. Also, as I argued recently, COLA increases should not be superimposed on wage increases agreed in collective agreements, but should form part of the negotiation process, so as to ensure that firms are able to match all wage increases with productivity increases. Faster productivity growth depends on many factors, including investment, the infrastructure, the quality of the human resources and  BIS central bankers’ speeches  7  hence the quality of the educational system and its ability to meet the skills requirements of a growing economy. Measures that increase the employment rate could include further policies that incentivise a higher female participation rate, as well as measures that facilitate more flexible work conditions, including part-time employment. A further requirement for economic growth is the smooth functioning of the financial system. Particularly during these turbulent times, continued economic growth depends also on the uninterrupted supply of credit by the financial sector to firms and households, and to that end the stability of the financial system is essential. It is important to note that although its rate of growth has declined, bank credit has continued to increase in Malta, unlike the situation across the euro area, where widespread deleveraging by financial institutions has led to a contraction in the volume of credit, as shown in Chart 7.

This is broadly reflected in the latest December 2019 Eurosystem staff projections, which foresee inflation at 1.1% in 2020, 1.4% in 2021 and 1.6% in 2022. At the same time, annual HICP inflation excluding energy and food is expected to be 1.3% in 2020, 1.4% in 2021 and 1.6% in 2022. The monetary policy stance Against a backdrop that remains clouded, the euro area economy still needs strong support from monetary policy. The policy stimulus that is in place is working its way through the economy and is expected to support growth and job creation, a key precondition for inflation to move towards our medium term inflation aim. Hence, at the last meeting, the Governing Council confirmed its forward guidance on the ECB’s policy interest rates, asset purchases and reinvestments. According to our guidance, we expect to maintain the key ECB interest rates “at their present or lower level until the inflation outlook robustly converges to a level sufficiently close to, but below, 2% within the projection horizon.” While rate guidance has been effective in steering rate expectations along the short- to mediumterm portion of the term structure, our ongoing net purchases, at a monthly pace of € billion, act primarily on the longer end of it. We also continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time “past the date when we start raising the key ECB interest rates”.
Loans expanded for several successive years at annual growth rates ranging from 60 percent to 80 percent in real terms. The share of foreign currency-denominated loans to households grew more than five times, from 2.2 percent of GDP in December 2004 to 11.6 percent of GDP in 2008. Moreover, the share of foreign currency-denominated loans to the corporate sector picked up substantially (Chart 3). Overall, financial intermediation (loans to the private sector/GDP) increased from 16.6 percent in 2004 to 39.3 percent in 2008 (Chart 4). BIS Review 5/2010  7  Chart 3 Breakdown of foreign currency-denominated loans granted by financial institutions percent of GDP  14 loans to households  11.6  12  10.6  loans to non-financial corporations  9.2  10 8  7.1  7.5  7.1  6  9.8  4.7 3.3  4 2.2 2 0 2004  2005  2006  2007  2008  Source: National Bank of Romania Chart 4 Breakdown of loans to the private sector 45  percent of GDP  loans to non-financial corporations a.o.

Norges Bank will increasingly use the Fund’s properties in developing investment strategies ahead, with particular emphasis on taking advantage of the Fund’s size and long-term investment horizon. BIS Review 45/2008  5  Norges Bank’s mandate sets the tracking error limit at 1.5 percentage points. Given this limit, the actual portfolio return is likely to deviate by less than 1.5 percentage points from the benchmark portfolio in two of three years, but it also implies a risk that active management may reduce the return by more than 1.5 percentage points every sixth year. In light of the size of the Fund, this will be a substantial amount in krone terms. Losses from active management must be expected in periods. Losses are not necessarily an indication that active management is not conducted professionally or not using the right strategies. The performance of the Fund’s investment management must be evaluated over a long time horizon. Even if the contribution from active management was negative for the first time in the Fund’s history last year, it does not change our confidence in and conviction that our organisation will contribute to achieving excess returns in the longer run. Thank you for your attention.
Clearly more stringent capital requirements on banks will be part of any new regulatory framework. I believe that moving capital requirements on banks is a very useful tool to work alongside monetary policy in achieving a stable economic environment. But there are other tools such as time-varying liquidity standards or limits on loan-to-value ratios on secured lending that could be used to limit the growth of credit over the cycle. However, it is not my role as a member of the MPC to comment on the exact design of macro-prudential instruments. But I do believe there is a strong case for having monetary policy tools – which for most of the time means the level of interest rates – set to achieve stability in nominal conditions; which means that they are focused on inflation. Using the interest rate as a tool to maintain the stability of the banking system strikes me as a strange assignment of policy tools to targets. Changes in interest rates have an uncertain impact on financial stability; often it would be unclear in which direction to move interest rates to help make the banking sector more robust. But in the UK changes in interest rates have a powerful – and relatively predictable – impact on the wider economy. In contrast capital requirements may have a powerful and relatively clear impact on bank robustness and an uncertain – but quite likely relatively small – impact on the wider  12  BIS Review 100/2010  economy.

Firstly, lower productivity growth leads agents to expect lower income growth in the future, prompting them to moderate their spending in the present. The resulting increase in saving exerts downward pressure on interest rates. Secondly, the increase in life expectancy in advanced economies has led households to increase their saving so as to finance their retirement period. Thirdly, rising demand for safe saving instruments in a context of high and growing economic uncertainty, coupled with a relatively scarce supply of such instruments, has put further downward pressure on equilibrium interest rates. Whatever its source, the decline in natural rates has shrunk the space for interest rate policy owing to the existence of a lower bound on nominal interest rates, thus making it harder for central banks to achieve our inflation aims. Climate change will likely affect the natural interest rate, but it is not obvious in which direction. On the one hand, it could further depress natural rates through negative effects on productivity, such as the impact of higher temperatures on labour supply and the destruction of capital stemming from natural disasters. Moreover, increased economic uncertainty associated with the impact from climate-related risks could lead to higher precautionary saving and further pull natural interest rates down. On the other hand, the transition towards a more sustainable economy will require substantial investment in green technologies, which may push equilibrium interest rates up. And if such investment succeeds in raising trend productivity growth, it could partially undo or even reverse the decline in natural interest rates.