samchain/econo-pairs-v1 huggingface dataset:
As we have noted in previous reports, this increases exposure to negative scenarios, which could significantly compromise the recovery of the economy and severely impact the well-being of families and the viability of many businesses. Indeed, the risk balance of this Monetary Policy Report shows a downward biased growth, and unbiased inflation. The downward bias for growth also recognizes the potential impact of the Metropolitan Region’s relapse to Phase 2, starting tomorrow, with a follow-up review in two weeks’ time. The CBC will continue to support the economic recovery by providing adequate financial conditions for households and businesses, keeping inflation under control and safeguarding financial stability. III. Final thoughts  We are presenting this Monetary Policy Report at the end of a year marked by a crisis of magnitude and impact that the world has not known in decades. This crisis is different from any cycle in the literature or documented in economic history, where the impact on productive activity, businesses, employment, and households was sudden, massive, and simultaneous. Our economy suffered this impact on two levels, first, through a severe worsening of external conditions, caused by the downfall of the rest of the world’s economies and, second, with the direct impact of social distancing measures on local activity. Thus, between the first quarter and the middle of the second quarter, the price of copper lost 20% of its price, activity contracted 17% and 1.8 million jobs were lost.

Trade activity has been strongly driven by the withdrawal of pension savings, with sales hitting all-time highs in lines such as home equipment, clothing and footwear, in addition to construction materials. Actually, household consumption data for the third quarter shows a very significant rebound in the purchase of durable goods. The consumption of services, on the other hand, remains well below its year-ago levels, combining the Page 2 of 19  restrictions that affect supply with fears of contagion that affect demand (Figure 5). The transitory nature of the increase in purchasing power, its orientation towards imported goods and the consolidation of online shopping has meant that salaried employment in trade has recovered only modestly. The strong push to the consumption of durable goods led to a significant reduction in inventories of some product lines, putting pressure on their prices. In fact, between August and October, inflation accumulated close to 1.5 percentage points, which was partially reversed by the negative figure for November. Most of the ups and downs of this period are explained by the change in these prices, which is reflected in the recent increase and partial reversal of goods inflation (Figure 6). Thus, headline and core inflation stand at 2.7% and 3.2% annually, respectively. These sharp inventory depletions and price increases have occurred in a context where imports have fallen considerably throughout 2020 (Figure 7).
In addition, cost pressures in many countries are moderate after several years of high unemployment and low wage growth. Chart: Money market rates for trading partners The low level of inflation has led central banks to implement further monetary policy easing over the past year. Policy rates are now negative in a number of countries. In addition, several central banks have introduced other instruments to stimulate economic activity and mitigate the risk of deflation. The European Central Bank (ECB) has expanded its asset purchase programme to include government bonds. The Riksbank, the central bank of Sweden, introduced a government bond purchase programme at the beginning of last year. On the other hand, the Federal Reserve raised its policy rate for the first time in nine years in  BIS central bankers’ speeches  1  December 2015. Trading partners’ policy rates can be expected to remain low for a long period ahead. External developments influence the Norwegian economy through several channels: through demand for Norwegian goods and services, through financial markets and the exchange rate and, not least, through commodity prices. Chart: Oil prices The fall in oil prices began in summer 2014 and continued through 2015. Oil prices have picked up again somewhat in recent months to just over USD 45 per barrel, but are still at less than half of their pre-fall level. Futures prices have also decreased in the past year. These prices now indicate only a moderate rise in oil prices ahead.

It may well be in the interest of the candidate countries to make this period as short as possible. Sixth, it is true that any country entering the EMU need to fix the exchange rate. One should not take for granted, however, that the longer the period of the intermediate regime the better, as it is not always true that longer wait produces more information about the proper rate of exchange. It may produce just more noise. Seventh, both further efficient disinflation and strengthening long-term economic growth require completion of certain structural reforms in the candidate countries. There is no way around it. In case of Poland, the liberalization of the labour market and increased participation rate is badly needed. Fiscal reforms must concentrate on rationalising the spending and not just increasing taxes. Privatisation needs to be completed and it should include the banking sector. We have to strengthen competition in fuel and energy sectors. Legal framework needs to be adjusted to be more efficient. The earlier deadline of the entry to the EU could act as a powerful motivating device to complete those reforms. I am a great believer in the deadlines and I think they help to achieve success. Delaying the entry could do more harm then good, as it could weaken the incentive to complete the necessary and often politically costly reforms. Eighth, flexibility of the rate of exchange is a poor substitute for structural reforms.
Neither do I believe that in connection with the ongoing technological breakthrough we can look forward to corporate profit growth being essentially higher than what would follow from an increase in GDP’s potential growth. And even then it would probably not be a matter several percentage points. But smaller figures than that are still sufficient to generate a major improvement in a country’s prosperity after one or two decades. The acceleration of Sweden’s annual GDP growth from 2 per cent around the turn of the nineteenth century to between 3 and 4 per cent for a couple of decades, was crucial for our economic development. Diagram 4:  Sweden: GDP and profits share 6 5 4  Average 3,2%  3  GDP  2 1 0 1870  1880  1890  1900  1910  1920  1930  1940  40  Average 32%  30 20  Profit share  10 0 1870  1880  1890  190 0  1910  1920  1930  194 0  Sources: Östen Johansson and Karl Jungenfelt. Another argument in the same direction is that the new economy refers to the breakthrough for computer and telecom technology. These innovations should make it easier to obtain information and, if anything, make consumers more knowledgeable. If that happens, perhaps such factors as past reputations and brand familiarity will have less influence on purchasing decisions in the future.

That is why I am also fundamentally optimistic about what computer and telecom technology can achieve in time for our country’s economic growth and prosperity. Technological breakthroughs, corporate profits and share prices Now let me consider the other question, namely the part that technological breakthroughs play for corporate profits and thereby for share prices. In the latter part of 1999 and early in 2000 shares were a feverish topic in Sweden — everyone talked about them and how much you could make by speculating in the stock market. The media were full of articles about “How to find the winners” and “How to become a day-trader”. Advisors at banks and stockbrokers waxed lyrical about share investment’s possibilities. Many people who had never owned a share or never even dreamed they would do so were tempted to speculate. Perhaps they needed a little extra money for the summer holiday, a new car or simply more cash for everyday things — why not make a little money easily and quickly, everyone was doing it, to judge from what people were telling each other at work and elsewhere. As though to confirm all this, share prices on the Stockholm bourse rose continuously to new all-time highs, as they did on many stock markets around the world. Shares did best for companies that were  BIS Review 90/2001  3  running at a loss and even needed to issue new shares to cover current operations.
The law that created the Federal Reserve made the central bank independent so that policymakers could make decisions about monetary policy – such as whether to adjust interest rates – in the national interest, somewhat insulated from political pressure. However, the Fed is accountable to Congress. Congress has set an explicit objective for monetary policy: To pursue the highest level of employment consistent with price stability. This objective is often referred to as our “dual mandate,” because it combines two goals: high employment, and low and stable inflation. In order to promote these objectives, we also pay close attention to financial stability, because without financial stability, it is very hard to achieve our goals for jobs and inflation. The FOMC consists of the Board of Governors plus the presidents of each of the 12 district Banks. It meets in Washington, D.C., eight times per year to deliberate and vote on monetary  BIS central bankers’ speeches  1  policy. As the current New York Fed president, I am vice chairman at these meetings. At these meetings, each committee member presents his or her current outlook for the economy. For these assessments, we augment input from our research departments with critical information about local economic conditions supplied by our boards of directors, regional advisory councils and conversations with local stakeholders. My visit to Puerto Rico today is a part of these regional activities, in which I learn first-hand about the economic and financial conditions important to Puerto Ricans.

In the middle of next year, we are introducing a cap on the total mortgage cost — for people to see the fair value of a loan including all tied options. We believe it is essential that the total loan cost, viewed broadly, stops banks from circumventing our restrictions through creative options that add to the total loan cost. That would involve legislative changes, and we need your support there. The subject of debt burden and consumer loans will remain our focus, but I would now like to proceed to comment on the rollout of financial technologies. You will agree that our financial sector is quite advanced technologically, offering many services, digital services and online payments that are still unavailable in other countries. We are committed to ongoing support of innovations in the financial sector, and continue our dialogue on potential areas of development. We report good progress with payments for goods and services in the Faster Payments System. Some time ago, the system only applied to money transfers. Now, people can pay for goods and services via banks’ mobile applications, with a QR code. Companies stand to benefit from the lower costs compared to acquiring. You know how acute that problem has been, especially for small and medium-sized businesses. Payments are routine transactions today, and multiple channels should be available to process them. This is essential to cost reduction. The more competitive the market, the better its product offering. Therefore, we will open the payment market to non-financial organisations, too.
And it is reasonable to evaluate the costs and benefits of using all these different tools so that economic policy is as efficient and effective as possible for the economy as a whole. But how the various tools are used is a matter for those responsible for the different policy areas and as regards fiscal policy, it is of course the Riksdag and the Government that determine how and on what grounds it is to be conducted. Price stability still the basis for monetary policy In conclusion – the decade we are emerging from was characterised by crises and a deep, long-lasting recession. In that perspective, it is difficult not to describe the future as brighter – to refer back to the question which is the title of today’s seminar. As always, there are uncertainty factors, but the Riksbank’s assessment is that the economic outlook is still good both in Sweden and abroad. For monetary policy, it is a question of ensuring that inflation continues to develop in line with our inflation target. Monetary policy therefore needs to remain expansionary so that the strong economy can have an impact on inflation and so that the Swedish krona does not appreciate too rapidly. In the near term, we also need to be pay particular attention to current downside risks. When normalisation of monetary policy is under way, it will happen in an environment that is, in many ways, different from the one we have operated in over the last ten years.

Without these measures, the euro area would have been in outright deflation last year and prices would have fallen at an even quicker pace this year. Growth would have been significantly lower. BIS central bankers’ speeches  1  Second, while our measures were deemed effective, they were also judged to be insufficient in view of the deteriorating outlook for price stability. There was a concrete risk that without increasing the quantitative stimulus, the date by which inflation would settle around levels below, but close to, 2% would once more be pushed back beyond any relevant definition of medium term. Therefore we decided to recalibrate our monetary policy stance. We cut the deposit facility rate further to –0.3%, we extended the envisaged end-date for our monthly purchases to the end of March 2017, while maintaining its conditionality on the inflation outlook, and we announced that we will reinvest the principal payments of our purchased assets once they mature, for as long as necessary. We also decided to continue conducting the main refinancing operations and three-month longer-term refinancing operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the last reserve maintenance period of 2017. Since our meeting in early December, conditions have once more changed. A moderate recovery of the euro area economy is under way, driven mainly by domestic demand. But downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks.
But in the spirit of giving others sticks to beat us with, I invite views – particularly from small banks, who in my experience are not shy in offering us their perspectives. But one obvious thing we can do is to map the actual distribution of banks in the UK today against the distribution of thresholds, to see how the two compare. Any sudden flattening of the cumulative distribution of banks at specific thresholds could suggest cliff-edge effects (perhaps from clusters of thresholds) that might have the potential to discourage banks from growing. 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  Needless to say, our tireless PRA robot has done this too. Here is what it looks like: Chart 2a: UK prudential regulation thresholds mapped against number of banks by size (deposit-takers)  Chart 2b: UK prudential regulation thresholds mapped against number of banks by size, up to £ (deposit-takers)  Sources: SNL Capital IQ, CRR, BCBS, PRA Rulebook, EBA Technical Standards, Supervisory Statements, and Statements of Policy. Note: Only includes thresholds that are either set using assets/deposits values, or can be translated into assets/deposits values. The y-axis corresponds to the proportion of thresholds/banks below the £ value for assets/deposits on the x-axis. I invite views on this picture, but offer two preliminary observations myself. First, as everyone in banking knows, by number we have a concentration of firms at relatively low asset sizes.

Now, a few years ago the way we’d have investigated this would have been to get an analyst from our Policy Directorate to enter the mighty forest of UK financial regulation and hunt down any and all thresholds for our examination. However, last year – quietly and without great fanfare – our team started to turn this forest into a dataset better suited for textual analysis. I like to call this a machine-readable Rulebook but this upsets the experts in the PRA, so instead you should think of it as us having chopped up all of the rules into bite-sized elements and put each of those into a cell in a giant database. Our team is now publishing the code used for this effort, and a Staff Working Paper with early research findings from the data. One great benefit of this is that rather than tasking an unfortunate analyst with the Herculean endeavour of mapping all the thresholds, we are able to use a PRA robot to do the job instead.3 The PRA competition robot has returned from its daunting mission with interesting findings. First, there are 53 thresholds for deposit-takers, spread across all the main policy areas but with a concentration in capital (17), reporting (11) and remuneration (8).4 Second, 13 unique metrics are used to set thresholds. The most common, unsurprisingly, is simply assets – 26 of the 53. But even within these asset-based ones 16 different values are used to set the actual threshold.
4  Several central banks that do not call themselves inflation targeters effectively do conduct flexible inflation targeting, although they may not be quite as transparent about their inflation target, the role of stability of the real economy, etc. 5  See, for instance, Taylor (2007). 6  See Bean (2009) for an extensive and excellent discussion of the crisis, including the credit expansion and housing boom, the macroeconomic antecedents, the distorted incentives, the information problems, the amplification and propagation of the crisis into the real economy, the policy responses and the lessons for monetary policy and economics generally. The Bank for International Settlements (2009) provides a more detailed account of the possible macro- and microeconomic causes of the crisis. 2  BIS Review 16/2010  incentives to exercise less due diligence in loan origination because of securitisation and to conduct regulatory arbitrage by setting up off-balance-sheet entities, which for various specific reasons ended up still effectively remaining on the balance sheet. There were also distorted incentives for traders and fund managers to take excessive risks because of myopic and asymmetric remuneration contracts. There were eventually enormous information problems in assessing the risks of extremely complex asset-backed securities, and there was a huge underestimation of the potential for correlated systemic risks. None of these causes had anything to do with monetary policy, except that monetary policy may have contributed to the Great Moderation. Regarding the role of Federal Reserve monetary policy in the crisis, there are two relevant questions.

9  Bernanke (2010) shows that Fed policy rates do not seem excessively low given real-time FOMC forecasts. 10  See Del Negro and Otrok (2007), Jarocinski and Smets (2008), Edge, Kiley, and Laforte (2008), and Iacoviello and Neri (2008). 11  See Nyberg (2010) for similar arguments. BIS Review 16/2010  3  (although they could have ended the Great Moderation with a deep recession and deflation). 12 However, going beyond the Fed’s actual monetary policy, perhaps it is possible that the Fed’s emphasis on its readiness to relax monetary policy aggressively in the wake of a sharp fall in asset prices, as expressed by Greenspan (2002) for example, may have induced expectations of a floor under future asset prices and contributed to the asset-price boom, the so-called Greenspan put (Miller, Weller and Zhang, 2002). Arguably, this is more of a communication issue than one of actual policy, and less emphasis on the readiness to clean up after a sharp fall in asset prices might have been a preferable alternative. The International Monetary Fund (2009, Chapter 3) has investigated the role of monetary policy in causing financial crises. A large number of countries and financial crises were included in the sample.
Increasing capital is one way to get leverage down; that is why governments in the US and other affected countries forced banks to raise more capital privately or else  12  BIS Review 101/2009  accept injections of extra capital financed by the taxpayer. Extending guarantees on funding, whether retail or wholesale, is another way to make creditors believe that they will get their money back, as are measures to insure or quarantine the risky bad assets. An open question is therefore whether the banking system will be able to support an adequate volume of credit as the extensive network of public support is removed. If not, then further attempts to de-leverage are possible. And de-leveraging through the restriction of new loans generates a positive feedback loop analogous to that through asset sales. Deleveraging by restricting credit growth may be privately rational, but if every intermediary tries to do the same, the result will be lower activity and higher defaults and little improvement in leverage ratios – what, to paraphrase Keynes, we might describe as the “paradox of deleveraging”. A recent insightful contribution from Gertler and Karadi (2009) explicitly captures the role that de-leveraging can play in slowing a recovery when financial intermediaries need to hold capital in order to convince creditors that they will be repaid. Policy: cure and prevention The severity of the financial crisis and the sharpness of the contraction in activity have prompted an aggressive response by policy makers.

18 documents some similar results from a recent IMF (2008) exercise, showing that the cumulative output loss in outright recessions, as well as in milder slowdowns, on average tends to be almost twice as much if preceded by a financial crisis. The results of Furceri and Mourougane (2009) suggest, moreover, that part of this output loss is permanent; they find that the typical OECD financial crisis knocks around 2% off potential output, which rises to 4% for deep crises. These findings suggest that financial crises can have a material impact on both the dynamics of the business cycle and on the underlying equilibrium growth path. The literature on the “broad credit channel” and the “financial accelerator” points to an amplifying effect of changes in firms’ financial health on their cost of capital. In particular, when borrowers have less collateral they face a higher external finance premium to compensate lenders for the increased monitoring costs (see e.g. Bernanke, Gertler and Gilchrist, 1999). But the quantitative magnitude of the effect in this type of model is usually relatively modest. And the banks in this class of model are simple or non-existent, and any incentive or information problems relate to the borrower, rather than the financial intermediary. Instead, it seems likely that the adequacy of bank capital and the associated phenomenon of financial sector de-leveraging are likely to play a central role. Capital is essential because it is the means by which intermediaries persuade creditors that they will almost surely get their money back.