samchain/econo-pairs-v1 huggingface dataset:
Recognizing this is important to understanding both why the U.S. imbalance has grown as large as it has and, perhaps, more importantly why it has been financed with such apparent ease despite obvious concerns about its sustainability. If the U.S. external deficit continues to run at a level close to 7 percent of GDP—and most forecasts assume it will for some time, then the net international investment position of the United States will deteriorate sharply, U.S. net obligations to the rest of the world will rise to a very substantial share of GDP, and a growing share of U.S. income will have to go to service those obligations. The anomaly is that these imbalances have persisted on a seemly unsustainable path with relatively low interest rates and very little evidence of rising risk premia. Economists have invested quite a bit of effort over the past two years in exploring alternative explanations for the coexistence of these phenomena, and their potential implications for policy. Much of the focus has been on looking at the forces behind the current pattern of global capital flows and how those forces might evolve over time.

They will again be put to the test when the terms-of-trade change is reversed and the gains either fully or partly dissipate. Monetary policy in Norway is oriented towards low and stable inflation. Low and stable inflation provides enterprises and households with an anchor for inflation expectations. Given that there is confidence in the nominal anchor, monetary policy shall also contribute to stable developments in the real economy. Norges Bank therefore operates a flexible inflation targeting regime. This means that weight is given both to variability in inflation and variability in output and employment in interest-rate setting. Monetary policy is facing particular challenges. Inflation has been considerably lower than the inflation target during the past three years. During the same three-year period, economic growth has been high, and higher than our estimate for long-term growth potential. The output gap has shifted from negative to positive. Unemployment is low and falling, and the increase in house prices, equity prices and credit has been high. Monetary policy has been and continues to be expansionary. Real interest rates have been low, and considerably lower than what is regarded as a neutral level. The expansionary monetary stance must be seen in the light of the fact that inflation has been very low and that there was idle capacity for a longer period. BIS Review 49/2006  1  The economy is periodically exposed to unexpected supply- and demand-side disturbances that affect both inflation and output.
strategy to be applicable as a concrete guide for monetary policy. Second, to combat the cause of the disease, not its symptoms, but within the precise confines of our mandate. According to our diagnosis, the cause was the pricing of a catastrophic event – exit from the euro – into governments’ debt valuations. The symptom was – once more – an acute liquidity crisis for banks. The framework of the outright monetary transactions (OMTs) is now well known. Here, I’ll limit my remarks to one specific aspect of this new policy initiative, which we announced in early August. It’s the fact that this initiative is entirely in the tradition of our non-standard monetary policy instruments. Let me explain. Broadly speaking, there are two approaches to non-standard monetary policy. The first one can be referred to as “quantitative easing”. It focuses on the importance of portfolio balance channels in the transmission mechanism. In essence, it aims to inject further stimulus in a situation in which the policy rate is constrained by its lower bound. 5 Under the second approach to non-standard policies, a central bank does not aim to withdraw duration risk from the economy. It relies on the market-functioning channel and aims to reduce the spread between the yield paid by risky securities or standard loan contracts and risk-free securities with the same maturity. It does not necessarily aim to inject additional stimulus in lower-bound conditions, but to repair a breakdown in asset pricing and in the functioning of the credit market.

In the identification of its policy orientation, the ECB bears in mind that an inflation rate too close to zero restrains the conduct of policy in deep recessions and it also filters out a host of factors that distort the measurement of the policy-relevant drift in prices. 3 Third, the strategy describes and structures a host of economic and monetary variables which can signal risks to price stability before they materialise. This set includes important monetary and financial variables which influence the way monetary policy intentions are transmitted to price-setting decisions in the medium term. As I said, the strategy turns the Treaty assignment into an action plan which, if I may borrow from performance management jargon, I would call S.M.A.R.T. — Specific, Measurable, Attainable, Relevant and Timely. Let me focus on the “M” and “A”. The action plan is measurable, and we can assess the ECB’s progress towards that goal by looking at its record. Prices since the start of the euro have indeed been stable and in line with our definition. The average inflation rate over the past 13 years has been slightly higher than 2%. 4 The goal was attainable and it was attained. Monetary policy and lack of trust in the integrity of the euro area Over the summer the price of bonds issued by some governments in the euro area fell on concerns that investors’ claims could be discharged by the issuer in a currency other than the euro, the currency of denomination.
In March that year the government and the Central Bank issued a joint declaration abandoning the fixed exchange rate policy and adopting inflation targeting as the mainstay of monetary policy in its place. A target was set for the Central Bank’s monetary policy to keep inflation as close as possible to 2½%, to be attained before the end of 2003. One consequence was that the exchange rate of the króna was floated. Just under two months later, parliament unanimously passed a new Central Bank Act which entailed extensive changes from the earlier legislation. Inflation targeting has established itself in many countries in recent years and has formed the backbone of monetary policy in countries such as the UK, Sweden, Norway and New Zealand, with good results. The new act took account of central bank legislation in other countries and one of its aims is to consolidate the new inflation targeting policy. The most important change from the legislation it replaced was to set a single principal objective for the Central Bank, i.e. to contribute towards price stability. It was granted independence to apply its instruments in order to attain this objective. Furthermore, the Bank was assigned the task of maintaining Iceland’s foreign exchange reserve and contributing to an efficient and reliable financial system, i.e. financial stability. The act also stipulated that the treasury may not borrow from the Central Bank. Specific requirements were made concerning accountability and transparency.

And even the banks, despite the fierce criticism from some firms who did not receive the financial support they expected, do not seem to have been as quick to pull the plug on their borrowers as they were during previous downturns. Overall, the fall in output does not appear to have done as much damage to employment and firm survival as one might have expected. At the same time, the implication of business surveys is that the degree of spare capacity in firms is rather less than implied by the fall in output. So estimates of the gap between overall demand and the economy’s capacity to produce goods and services – an indicator of inflationary pressure known as the “output gap” – are extremely uncertain at the current juncture. The “output gap” appears to be much smaller than the fall in demand alone would have suggested, but there is little evidence of widespread destruction of supply capacity. Whatever the balance between demand and supply, it seems that many firms have maintained prices, not cut them, in the face of weak demand. That may have been a rational  BIS Review 91/2010  3  response. In order to survive they needed to maximise their present cash flow and they would only have cut prices if the demand response was likely to outweigh the lost revenue. Comparisons with behaviour in previous post-war recessions are difficult, partly because inflation was much higher during those episodes.
Figures 8 and 9 show the Riksbank's forecasts for inflation and the output gap since the beginning of 2007 and the sum of squares for the inflation-gap and output-gap forecasts. 9 It is apparent that the initial situation for the forecasts can be very different. If, for example, we compare the forecast in February 2007 with the latest forecast from February 2009, it is obvious that it was much easier to make the earlier forecast "look good". The forecast at that time indicated that the deviations for the inflation target and the output gap were small – the sums of squares were close to origin. This can be contrasted to the situation in early 2009 when the fluctuations in both of the forecasts were considerable and the sums of squares were far up to the right in the figure. Finally, before I move on to discuss the evaluation of monetary policy after the event, I would like to say that ex ante evaluations have the major advantage that they can be carried out on an ongoing basis in real time and that you do not need to wait several years to see the outcomes for inflation and the real economy. I would like to see competent ex ante evaluations become a lasting feature of the ongoing public debate on monetary policy so that they could constantly encourage the central banks to improve their analyses and their policies.

The US Federal Reserve Board has undertaken a review of the  supervision and regulation of Silicon Valley Bank, in light of its failure.4 In the same vein, the Basel Committee on Banking Supervision agreed in March to take stock of the regulatory and supervisory implications stemming from recent events, with a view to learning lessons.5 Beyond the banking sector Turning to vulnerabilities faced by the non-financial sectors, we have yet to see the full impact of rising borrowing costs and high inflation. In the case of households, while labour markets remain strong, budgets are stretched given the decline observed in real disposable income and the erosion in household net worth due to the fall in the real value of savings, which reduces their capacity to continue servicing debt. In particular, households with variable rate mortgages and those most adversely affected by energy shortages are most vulnerable. For firms, higher borrowing and input costs as well as wage pressures may reduce profitability, stifle investment and reduce employment. And firms with larger shares of floating interest rate debt are directly exposed to higher interest rates. Also, firms operating in energy-intensive sectors, in real estate and construction are particularly vulnerable. There are also clear signs that European commercial real estate (CRE) markets are turning.
BIS Review 99/2010  3  Chart 2: World economic growth since 2000 Annual GDP growth rate, percent 6  Average 2000-08  5 4 3 2 1 0 -1 2000  2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  Source: IMF World Economic Outlook, July 2010 update  Turnaround in the UK economy Alongside this improvement in the international economy, the UK economy has also turned around since last summer. Business surveys and the labour market data have been suggesting a return to growth since the second half of last year. The official estimates of GDP still show a fairly modest recovery, starting in the final quarter of 2009 – though the estimates of real GDP growth that we currently have over the recovery period are very provisional and may indeed be revised in the future. That is what happened in the early 1990s recovery, where the picture we now have of growth in the early stages of that recovery – in 1992 and 1993 – are very different from the initial estimates. One of the concerns that the MPC had a year ago when policy was being loosened was the sharp fall in measures of nominal demand – the growth of spending in money terms, before adjusting for inflation. As the recession took hold, GDP and other measures of demand not only fell in real terms, but they fell in nominal or money terms too.

We continue to believe that this is the path forward for the region, and one that requires our institutions to continue to further deepen our already strong ties in building capacities to manage risks in a more challenging environment. We look forward to closely collaborate with Bank Indonesia and the Bank of Thailand as well as other central banks 1/2  BIS central bankers' speeches  in the region. I would like to thank Governor Veerathai and his team at the Bank of Thailand for the excellent arrangements today and for the warm welcome extended to us. I would also like to express my appreciation to all of you for being with us today to witness this significant occasion by the three members of the ASEAN central banking community. 2/2  BIS central bankers' speeches
To achieve this the Bank has set every UK bank (and building society) a requirement for the minimum amount of such loss absorbing resources – known as MREL – it needs to hold. This requirement will need to be met in full by 2022. MREL covers both the capital a bank holds in going concern and the capital and debt that can be bailed in if it fails and enters resolution. The biggest UK banks already have going and gone concern resources sufficient to absorb losses of almost a quarter of their risk-weighted assets, and are well on their way towards meeting their full MREL requirements. Current levels of loss absorbing resources mean that even if the major UK banks saw losses six times the losses they incurred over 2008 and 2009, there would be sufficient private sector resources that could be bailed in to recapitalise the bank and stabilise it without taxpayer support. And next week, alongside the Purple Book, we will publish for consultation the Bank of England’s proposals on how these loss absorbing resources should be distributed within banking groups. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  In setting the timetable for meeting full MREL requirements, the Bank has considered the balance of costs and benefits. Issuing MREL imposes costs on banks. These costs will be minimized if banks are able to build up their MREL loss absorbing debt to replace their existing debt as it matures.

And we have established crisis management groups, and, in the EU, resolution colleges, that bring together the regional supervisors for the major cross border banks. These provide the mechanism for agreeing, in advance, the strategy for managing the failure of a major bank with a presence in a number of jurisdictions and for monitoring progress in making that strategy possible. This requires the continued build up, in line with the agreed international standard, of loss absorbing resources that can be used to recapitalise the group in resolution. And hosts’ confidence in the resolution strategy will depend on the contractually enforceable allocation of those resources across the groups major operating entities, again in line with international standards. Recapitalising a bank in resolution by bailing in the private sector restores solvency. But a solvent bank in resolution will still have liquidity needs. Our first preference – and that of the resolved firm – would be for the bank to meet those needs from some combination of its own liquid assets and private funding sources. But we cannot guarantee resolved firms will be in this position, even once they have been restored to solvency and are continuing to meet the requirements for authorisation. Ensuring solvent firms in resolution have access to public sources of liquidity is therefore a critical part of an effective resolution strategy and an area where there is great merit in clarity.
With regard to the second question – “Is it easier to counteract recessions if the interest rate is normally rather high than if it is very low?” – it is of course fairly obvious that if the normal situation is that the rate can be cut from a level that is not too low, this is preferable to the interest rate being low and there being little scope to cut it. But what exactly do we mean by “normal”? This leads me to the next question. Is the policy rate higher on average if inflation in general is relatively high than if it is very low? As I have already mentioned, the interest rate consists, somewhat simplified, of a real part and a part that is compensation for inflation.6 In a world with a very low average inflation rate, interest rates in general – the normal situation – will be lower than in a world where inflation is on average higher. As I just pointed out, one reason why interest rates are lower now than during the 1980s, for instance, is that inflation has fallen. A lower inflation rate was indeed what the introduction of inflation targeting was meant to achieve. But it is not only a too high inflation rate that is problematic, a too low inflation rate can cause problems as well.

The fact that interest rates have fallen, and are now at historically low levels, means that the level where the central banks’ policy rates are “neutral”— that is, neither expansionary nor contractionary – has also developed in a similar manner. The relationship between the neutral interest rate and monetary policy can be illustrated with the aid of Figure 4. The neutral interest rate is represented by the broken line. When central banks conduct monetary policy via the policy rate, they change it in the way described in the solid line. An interest rate that is lower than the neutral one stimulates demand and inflation, while an interest rate that is higher than the neutral one has the opposite effect. Central banks cannot set interest rates independently of the neutral interest rate, but must take it into account. As the neutral interest rate is currently at a historically low level, the central bank's policy rate needs to be very low to have an expansionary effect. This has meant that policy rates in many countries today are at or close to the lower bound, and would have been even lower if this had been considered possible. In other words, monetary policy is currently being squeezed from two sides — the pandemic and fall in demand that is subduing inflation on the one hand, and the conditions that make it difficult to cut the rate to counteract this on the other. 2 Skingsley (2016).
The extent of the diversity of economies in Asia points quite clearly to one conclusion and this is that monetary integration is inappropriate, at least for the time being. One can perhaps get a better appreciation of this argument by attempting to apply the Maastricht criteria for European monetary union to Asia. Thus realistically Asian monetary co-operation will have to be pursued under a multi-currency environment. Asian monetary co-operation is not about monetary integration. The situation argues for monetary segregation, even to the extent, in the case of China, of maintaining two currencies in one country: the Renminbi for the Mainland of China and the Hong Kong dollar for the Hong Kong Special Administrative Region. Again apply the Maastricht criteria to the Mainland of China and Hong Kong and you will come quickly to the conclusion that the “one country, two currencies” arrangement is a sensible one. It is essential if Hong Kong is to continue to be stable and prosperous as an international financial centre, as provided for in the Basic Law of Hong Kong. 44. Moving along the spectrum for monetary co-operation from the extreme end of monetary integration, we could consider whether some form of monetary policy co-ordination in Asia is appropriate. So far, however, there seems to be a lack of interest amongst monetary authorities in Asia in promoting this. Perhaps there has been no such need identified. Monetary sovereignty has been carefully guarded in this region.

On the other hand, a flexible exchange rate regime can also work, provided that the policy package is correct and there is a well functioning foreign exchange and financial market. But it would be a mistake to think devaluation can substitute for fundamental policy adjustments to correct a structural external imbalance. Competitive devaluations are “beggar-thy-neighbour” policies that are self defeating. 31. Indeed, the adoption of more flexible exchange rate systems by some Asian economies has not meant they can avoid the adjustments that are currently being undertaken. With a fixed exchange rate under a very strong and disciplined regime in the form of a currency board system, Hong Kong focused precisely on our underlying productivity, maintaining strict financial and fiscal discipline, and also prudent banking supervision, in order to enhance the resilience of the linked exchange rate system, and minimize and manage the downside risks of overheating in the economy. 32. Let me also put the currency adjustments in their proper perspective. In the last few years, the currencies with the greatest adjustments and volatility have been the G-3 currencies, rather than the Asian currencies. The yen has depreciated by 50% against the US dollar from its peak in 1995. The deutschemark has likewise fallen by over 30%. In comparison, the Asian currencies have until recently remained relatively stable. The Hong Kong dollar has been the most stable of BIS Review 91/1997  -7-  Asian currencies, moving less than 1% against the US dollar.