samchain/econo-pairs-v1 huggingface dataset:
BIS Review 17/2005  3  The suite takes two forms. One is a range of models that are complementary to the core forecasting model. These hold up a magnifying glass to particular parts of the economy, and allow us to take account of the influence of a wider range of factors in more detail than could be accommodated in the main model. These (sub-) models might be geared towards analysing particular policy issues (e.g., supply chain pricing models, the future development of household and corporate gearing, productivity growth in the distribution sector). Or they might also provide the interface between our very short-term conjunctural analysis, and the 2-3 year forecast. Second, we have a set of statistical models. The MPC attempts to process a huge amount of information before each monthly decision. The Committee already uses some data-driven forecasts (for example, forecasts that uses many variables to forecast in an a-theoretic way, statistical models to produce near term forecasts for key data such as CPI, and small models that filter ONS first releases, to handle the inevitable data uncertainty associated with early releases6). But it is a herculean task to absorb and analyse all the data. So, responding to the needs of the MPC, but also to suggestions by Pagan, the staff is in the process of developing and evaluating more models geared towards empirical forecasting accuracy and finding ways of combining these forecasts in a statistically efficient way.

Already before the 2008 crisis, central bankers firmly believed that price stability is a necessary – and for some even a sufficient – condition to ensure financial stability. This view is referred to as the ‘Jackson Hole consensus’. Following the financial crisis, financial imbalances were seen as a huge source of disruption which decision-makers needed to remedy, questioning the relationship between monetary and financial policy tools and objectives. Let me give two polar views on that. A first approach, in line with the ‘Jackson Hole consensus’, is to clearly separate monetary stability from financial stability. In line with the Tinbergen rule and the Mundell efficiency principle respectively, one policy should fulfil one objective and each policy tool should be assigned to the objective it can fulfil the best. In this regard, monetary policy would not be efficient at mitigating financial imbalances but would not generate them either. On the other side, an extreme approach is to consider that both policies are strongly intertwined and that their respective objectives could be merged: in this case, monetary policy could reduce risk taking and target asset price bubbles. I consider that full adherence to the separation principle and the combining of objectives are both approaches that are too radical to conduct monetary and financial stability policies. The implementation of unconventional policies has blurred the frontier between the two objectives. Let me quote here my colleague Vice-President Vítor Constâncio: “Macroprudential policy and monetary policy rely on separate tools and aim to achieve different objectives.
Second, history suggests that, at least in the latest crisis, they would have given far timelier signals of impending stress, and so a better guide to prompt corrective action, ahead of the crisis cliff-edge being reached. To illustrate that, Charts 6–8 look at the three market-based measures of solvency for the 33-bank panel, again broken down between “crisis” and “no crisis” banks. There is now clear blue water between the solvency ratios of the crisis and non-crisis banks, with the second materially weaker. In the two years prior to the Lehman Brothers crisis, the average marketbased capital ratio was around 5 percentage points lower for crisis than for no crisis banks. Second, market-based measures of capital offered clear advance signals of impending distress. For example, the market-based capital ratio of crisis banks began to fall in April 2007, well over a year ahead of the Lehmans crisis. To formalise that visual impression, Table 1 shows Type I and II errors for the three market-based capital measures. These now  8  Cannata and Quagliariello (2005), Gunther et al (2001), Krainer and Lopez (2004). 9  Berger et al (2000). 10  Calomiris and Herring (2011) prefer a variant of the first measure. 11  Largely, because even marked-based measures of solvency will rely on disclosures by banks, which will themselves be model-dependent to some degree. BIS central bankers’ speeches  5  comfortably outperform a coin toss. Replacing the book value of capital with its market value lowers errors by a half, often much more.

A detailed review of the collection shows that both Spanish and foreign historians have collaborated in the project, covering an agenda that includes modern and contemporary issues. Although the collection is open to all kinds of quality research, monetary and financial topics predominate. Now, I would like to say a few words about our library, which has played a key role in our economic history studies and research. It was set up in 1931, and from the first half of the 1970s professor Rojo promoted the formation of a highly specialised library, stepping up the acquisition of new collections and the modernisation and expansion of its services. 3/4  The most prized section of the library, the so called Fondo de Especial Valor, comprising more than 16.000 pieces from the 14th to the 19th centuries (now in the process of digitalization), is a testimony to economic thought and practice in Spain and Europe; its content encompasses 16th century merchants’ instructions, writings of the School of Salamanca, the publications of the 17th century arbitristas and the works of 18th century Enlightenment thinkers. The collection of royal decrees and proclamations (around 4,000 documents, including the 1745-1796 compilation ordered by the Count of Campomanes), dealing mainly with fiscal, mercantile and monetary matters, enriches the library’s scope with the perspective of legislation topics. The fact that these collections are complemented by others, such as the Goldsmiths’-Kress Library of Economic Literature and the King’s College collection of the papers of J.M.
Some insight can be provided by assessing whether, even in a simple environment, a complex predictive rule outperforms a simple one. To assess that,  BIS central bankers’ speeches  11  consider a wider range of potential predictors of bank failure than just capital. A natural starting point would be the well-known CAMEL (capital, asset quality, management, earnings and liquidity) indicators of bank strength. These are a commonly-used performance metric, including by bank supervisors. 16 Table 6 presents the results of a logit regression of US bank failure using the CAMEL indicators as predictors. All five CAMEL measures are correctly signed, although not all are statistically significant. The in-sample fit suggests an important explanatory role for the CAMEL measures. When fitting bank failure from the past, many indicators dominate the few. But how would this model have performed out-of-sample in situations where information was partial? As one way of exploring that question, consider estimating the model using a subset of the sample of banks and using that sub-set to predict bank failure for the remainder of the sample. This can be done for a sequence of random samples of varying sizes. 17 The size of these samples proxies the degree of information imperfection – the smaller the sample, the greater the model uncertainty. These random bank samples of varying sizes are used to re-estimate a set of models of bank failure.

The inflation measure CPI-ATE excludes the effects of changes in taxes and energy prices. Norges Bank has given weight to this indicator of underlying inflationary pressures in the economy, but also keeps an eye on other indicators. The 12-month rise in the CPIATE adjusted for the effects of lower maximum day-care rates is estimated at 1.1 per cent in March. However, the CPI-ATE not only strips out temporary effects of changes in tax changes and fluctuations in energy prices, but also trend changes in these variables. Thus, this indicator is not a full-proof measure of underlying inflation. In the last 10-20 years, where energy prices have risen at a faster pace than other consumer prices and the tax level has increased somewhat, the CPI-ATE has tended to underestimate underlying inflation. This is illustrated in the chart, which shows the difference between the year-on-year rise in the CPI and the CPI-ATE over a moving 10-year average. Since 1997, the difference has been about 0.35 percentage point. Even when taking into account trend increases in energy prices, inflation is still moderate. The indicators that provide the best expression of underlying inflationary pressures in the economy may vary over time. Driving forces ahead Monetary policy influences the economy with long and variable lags. This means we must look ahead when setting interest rates. I would therefore like to comment briefly on some international developments that are important to the Norwegian economy and the assumptions concerning developments in Norway on which Norges Bank’s assessments are based.
4  BIS central bankers’ speeches  appropriate boundaries for covert action. At the same time, the consequences of premature disclosure were vividly illustrated by the case of Northern Rock in September 2007, when a press leak led to long queues at branches, and required the government to issue a blanket guarantee to ease public concern. Where liquidity shortages are widespread, or central bank support would otherwise be seen as clearly confidence-enhancing, there are strong advantages in central banks conducting overt operations. But the capacity to operate covertly, subject to accountability safeguards, remains an essential part of the central bank toolkit. The final UK lesson is that LOLR frameworks must be flexible enough to respond to changes in the structure of financial markets if societies are to guard against the twin perils of lending “too little” or “too much”. At the start of the crisis, the UK’s LOLR toolkit was poorly equipped to deal with the needs that emerged, and had to be innovated rapidly. The changes introduced in recent years have reduced the risk that the Bank would lend “too little” if the same risks re-occurred. In all probability, however, the next crisis will not be like the last one. It is important that policy steps taken to prevent central banks lending “too much” to today’s financial institutions do not also impair their ability to maintain financial stability as the structure of financial markets adjust and policy needs change. One important change is the shift from bank to market-based finance.

This raises the question, however, whether it is necessary for central banks to carry out all the activities that they perform. As I mentioned earlier, I believe that central banks should assess the scope of their operations on a regular basis. By focusing on core activities at Sveriges Riksbank, it has been possible to cut the number of employees from about 850 in 1995 to around 450 today. In addition, one could go on to compare the costs of certain activities. We per-form benchmarking in several areas, and I know that this is something that other central banks have been doing as well. One should also compare the costs of in-house operations with those of outsourcing. Such comparisons have led us to outsource some activities, such as cleaning services and our staff restaurant. One potential problem when comparing activities separately is that it presupposes that objectives are not interrelated, and that there are no joint costs associ-ated with the different activities. Recently, questions regarding the connection between price stability and financial stability have attracted increasing attention and have given rise to a debate on whether there may be situations where the two goals conflict with each other. In normal circumstances, however, we do not perceive any conflict among our objectives. When measuring costs, it is important not to count the costs of the central bank only, but also of other parties that are important to performance.
Nominal interest rates increased markedly from 1950 – 1985, reflecting accelerating inflation in this period. After 1985, nominal interest rates fell again and are now at about the same level as in the interwar period. At the same time, short-term variations in nominal interest rates seem to have increased. This may be related to central banks’ more active use of interest rate policy to combat inflation. Developments in inflation since 1870 have been remarkably similar from country to country. This is not a new feature that has coincided with the market globalisation we have witnessed in recent years. It would appear that inflation is particularly low in periods when monetary policy has a clearly defined nominal anchor. Up to the First World War, the gold standard was that anchor, providing a direct link between the supply of gold and inflation. Whenever gold was discovered, the gold price dropped. In order to fulfil its commitment to maintaining the fixed price between a country’s currency and gold, the central bank was obliged to buy gold using the national currency as payment. The supply of money then increased, which contributed to inflation. In periods when no new gold finds were made, prices tended to be stable or falling. The tendency for prices to fall was amplified in periods of strong economic growth. Economic growth is accompanied by higher turnover. Unless new money is printed to accommodate this, prices must fall.

Under inflation targeting, the emphasis is given to maintaining core inflation within the target range and, at the same time, achieving a balanced growth path. We use the 1-day repurchase rate as a policy instrument to keep the quarterly average of core inflation within the target range of 0-3.5 percent. If inflationary pressure heightens and thereby increases the possibility of core inflation breaching the target, interest rate has to be raised. Bearing in mind that a time lag of 4-8 quarters before a change in the policy rate can be fully transmitted to the rest of the economy, policy consideration needs to be forward-looking. Upward inflationary pressure over the past few years, due to higher oil prices, has been tamed by monetary tightening. We raised the policy rate 13 times between August 2004 and June 2006, bringing the policy rate to 5.00 percent from 1.25 percent per annum. Hikes in the policy rate have brought the money market and commercial bank interest rates higher over the past 2 years. Our policy response proved timely, with inflation and its second round effects well contained. Recently, domestic demand, particularly in private consumption and investment, showed signs of a slowdown, while economic momentum from exports was expected to moderate, given the prospects of the global economy in 2007. Since inflationary pressures have subsided in line with easing energy prices, monetary policy could be eased in support of a further expansion of the economy.
The debate preceding the passage of the Federal Reserve Act in 1913 was protracted and intense. Early drafts of reform proposals were careful not to even mention a “central bank” – the 75-year-old scars from the Second Bank’s failed reauthorization battle had still not fully healed. Although there was a strong recognition that the country needed a central bank to forestall and mitigate financial panics, there was considerable disagreement about how it should be structured. Important considerations included what role should be played by  BIS central bankers’ speeches  1  private bankers versus government officials, how centralized the new bank should be and the extent of its powers. 1 During this period, the U.S. economy was susceptible to financial panics. Lacking a central bank, the country had no reliable lender of last resort that could provide currency and credit on demand against high-quality assets. Banks had to self-insure against bank runs by holding a high fraction of deposits as cash, and by entering into private liquidity agreements with other banks. Self-insurance was not only expensive relative to the cost of a public backstop provided by a central bank, but it was also limited in its effectiveness. When the business cycle turned down and financial stress intensified, bank runs often ensued as bank customers rushed to convert their deposits into cash. Without a true lender of last resort, cash that banks individually and collectively kept in reserve often proved inadequate to meet demand.

Similarly, the design adopted for the central bank in 1913 was also federated, with twelve independent Reserve Banks, each with its own capital and board of directors, overseen by a seven member Federal Reserve Board in Washington, with the Secretary of the Treasury serving as chair of the Board. This decentralized structure allayed the prevailing fear of concentrating power in either New York or Washington and, especially within the banking community, of ceding too much power to the federal government. Paul Warburg was an American banker who had emigrated to the United States from Europe. He was deeply involved in the debate about the appropriate structure of the central bank and described the concern as follows:  1  See America’s Bank: The Epic Struggle to Create the Federal Reserve, Roger Lowenstein, 2015. 2  President Wilson, who signed the Federal Reserve Act, described this new feature for the currency. “Suffice it here to say that it provides a currency which expands as it is needed and contracts when it is not needed: a currency which comes into existence in response to the call of every man who can show a going business and a concrete basis for extending credit to him, however obscure or prominent he may be, however big or little his business transactions.” Letter to Congressman Oscar Underwood, October 17, 1914, Wilson Papers, vol. 31. 3  In addition, the Federal Reserve was given the authority to clear checks on a nationwide basis.
It also leads naturally to a discussion of why those gaps have emerged between the best and the rest of UK companies and what might be done to close them. Can ways be found to accelerate the rate of technological diffusion to the long tail? I will argue an improved diffusion infrastructure, using as a base existing institutions and the UK’s innovation strengths, could help to close those productivity gaps. The “Hub-No-Spokes” Model My diagnosis of the UK’s productivity problem starts with three simple stylised facts about productivity gaps. The first two gaps are well-known, the third much less so. Fact one is that UK productivity has flat-lined for a decade. This means UK productivity is running almost 20% below its level had it continued along its precrisis trend (Chart 3). This is a big productivity gap, even if you believed the pre-crisis productivity trend may 6  have been somewhat over-inflated. It is a gap it is unclear will ever be closed. Fact two is that there is a second gap – perhaps as much as a third – between levels of productivity in the UK and in our main competitors, the US, Germany and France (Chart 4). This is an even-larger gap, even if you believed productivity was differently (mis-)measured across countries. It is the source of the oft-quoted quip that the average French worker achieves by Thursday lunchtime what the average British worker achieves only by close of business on a Friday.

Central banks' balance sheet totals, percentage of GDP 30  30 The Riksbank  25  25  ECB Federal reserve  20  20  15  15  10  10  5  5  0 Jan-07  0 Jul-07  Jan-08  Jul-08  Jan-09  Jul-09  Sources: Bureau of Economic Analysis, Eurostat, Statistics Sweden and the respective central banks  As we have discussed earlier, the Riksbank has also implemented unconventional measures – measures in addition to the policy we would probably have conducted under more normal circumstances. The effects of these measures are in many cases similar, which means that it is difficult to compartmentalise them. However, even if the boundaries are not razor-sharp, it is possible to divide them up according to their basic purposes. There are measures which are explicit monetary policy measures with the aim of stimulating demand in the economy further – since the repo rate is close to zero, the possibilities to use the “traditional” interest rate tool are limited. There are also measures that have been implemented to safeguard financial stability. …to attain the inflation target... To attain the inflation target, it has been necessary to make use of new tools to get the financial markets functioning better, to increase the access to loans and to try to bring down various interest rates and risk premiums that have counteracted monetary policy.
It is the only way to create higher economic growth. It is a process that should never stop. Better ranking on these lists does not mean that we will immediately have higher economic growth. It takes time, we should continuously improve the conditions for doing business. BIS central bankers’ speeches  5

The theme of this Conference, Financial integration and inclusive development, is particularly timely at this current juncture of the world economy. Global economic growth is at its lowest level since the global financial crisis, partly as a consequence of the high level of uncertainty surrounding trade and international relations. This weakness of the global economic landscape is adding to the new challenges that have emerged over the last decades: population aging, migration, security threats, the emergence of new economic and political powers, and climate change, to mention only some. And this evolution has taken place in an era of increasing globalization, that is being threatened by the emergence 2/3  of protectionist measures, and of digitalization and rapid development of new technologies. Together, these developments constitute a new frontier for policies that make it necessary to promote mutual understanding and make extensive coordinated efforts in the field of policies. In order to preserve the benefits derived from financial interconnectedness and technological innovation, it is now of the essence to put in place an internationally agreed response that allows to achieve the benefits of innovation while ensuring the mitigation of its potential risks. Policy-makers have the responsibility to support the research and analysis to base to foster growth and fight inequalities. In this Conference we are going to debate on a number of challenges that our countries are currently facing: from technological innovations in finance to migration flows in search for better opportunities, going through increasing financial interdependences or the need of boosting financial education.