samchain/econo-pairs-v1 huggingface dataset:
This implies either that U.S. monetary policymakers think that the equilibrium real short-term rate is currently depressed, or that they judge that a monetary policy stance more inertial than the Taylor 1999 standard is more appropriate for the FOMC to achieve its mandated employment and inflation objectives. My own view is that it is a bit of both. Lingering headwinds related to the financial crisis suggest that r* is temporarily depressed. In addition, there are some reasons to be cautious in how early and fast one should raise short-term interest rates. In particular, inflation is projected to stay for some time below the Fed’s objective of 2 percent for the PCE deflator and marketbased measures of inflation compensation are depressed currently. Also, as I have noted elsewhere, I believe that the risks of lifting the federal funds rate off of the zero lower bound a  2  BIS central bankers’ speeches  bit early are higher than the risks of lifting off a bit late. This argues for a more inertial approach to policy. That said, it is important not to overemphasize uncertainty to justify a policy of persistently low short-term interest rates. There are also risks from too much policy inertia. An inertial approach works well as long as inflation expectations stay well-anchored.

I will argue that in the U.S. context, a Taylor-type rule – even an inertial one – is an incomplete guide for policy because it does not explicitly include financial variables that are important factors in the transmission of monetary policy to the real economy. Finally, I will briefly comment on the issue of secular stagnation and my views on the long-term equilibrium real federal funds rate. Turning to the first issue of the relationship between real potential GDP growth and the equilibrium real short-term interest rate, the authors find, at best, only a very loose relationship. I would have welcomed some further work here, more closely focused on the components of real potential GDP growth – such as labor input and productivity – and their potential links to the level and dynamics of the equilibrium real short-term rate. First, I would look more closely at the demographic factors that influence the amount of labor input. In my view, it seems plausible that when the labor force is rising rapidly, this might put upward pressure on r* by increasing the demand for capital needed to equip the new army of workers. This might have been particularly relevant during the late 1970s when the labor supply in the U.S. was rising rapidly due to the influx of the baby boom generation into the workforce and the climb in female participation rates. Second, the equilibrium real short-term rate might be influenced by the productivity growth rate.
In the current setting of very low interest rates, the positive impact of the fiscal expansion would not only be greater in the countries pursuing it; it would also spread to the other partners, giving rise to positive spillover effects for the area as a whole. Yet as I have indicated, in the current euro area fiscal framework these decisions are the responsibility of national governments, which hampers their adoption. The composition of spending is also important. In particular, the growth of public investment continues to be very moderate, following the cuts to it during the crisis. This is set against the major challenges we must face in the coming years in various areas, such as digital transformation, the energy transition, population ageing and, generally, the necessary adaptation of our productive system to a more complex and demanding global environment. In light of this, it is a great concern that the euro area should still not have fiscal policy tools capable of contributing to a common response to these challenges and promoting a greater 11  See P. Hernández de Cos (2017), “Rules and Institutions for Fiscal Governance in Europe”, Chapter 9, Euro Yearbook 2017. Fundación ICO. 11/16  degree of cyclical stability for the Union as a whole. Indeed, recent Banco de España studies12 point out that while in the United States the federal budget smooths economic shocks by close to 10%, in Europe this mechanism is non-existent.

Following the launch of the Single Supervisory Mechanism and the Single Resolution Fund, efforts should focus on reaching agreement on the start-up of European Deposit Insurance. Currently, decisions on the supervision and resolution of banks are taken at the European level, while the responsibility for financing deposit guarantee schemes falls on national insurance arrangements. This divergence is not only fertile ground for potential political and institutional conflicts, but it also hinders the creation of a true European banking system. To progress in this area, it will be necessary to further reduce risks (bank and sovereign alike). But political momentum will also be required to allow a better alignment of responsibilities with effective decision-making capacity and, above all, to provide for the better harnessing of the opportunities afforded by the EU to bring about better riskdiversification and risk-sharing among its members. Finally, we should also explore creating a common safe asset for the euro area as a whole. The operations of financial markets and intermediaries require a broad set of sufficiently liquid assets with minimal counterparty risks. This need is greater at times of financial turmoil, given that investors tend to react by accumulating low-risk assets. Within the euro area, the volume of these low-risk assets is insufficient, since the debt of only a small number of countries is considered risk-free. That gives rise to a shortage of such assets and to financial fragmentation. Evidently, an improvement in countries’ fiscal positions might help increase the amount of risk-free assets available.
After the global financial crisis the correlation rose sharply to 0.6 for the euro area and 0.75 for non-euro area OECD countries. 2  See Ivashina, V., Scharfstein, D.S., Stein J.C. (2012), “Dollar Funding and the Lending Behavior of Global Banks”, NBER Working Paper No 18528, November. 3  See Bank for International Settlements (2014), “EME Banking Systems and regional financial integration”, CGFS Papers, No 51. BIS central bankers’ speeches  1  cross-border liquidity flows or the US rules for foreign banking organisations may be seen as examples. Such a “de-globalisation” scenario, if confirmed, could become self-validating and have profound effects on the degree of international risk-sharing, spillovers and the global allocation of savings, and therefore on global long-term growth. Shifting economic centre of gravity Since the early 2000s the world has also witnessed impressive growth rates in emerging economies, which have exceeded those in the advanced world. In particular the BRICS (Brazil, Russia, India, China and South Africa) have more than doubled their share of global GDP from less than 10% in 2000 to 21% in 2013; similarly, other low and middle-income economies have seen their share increase from 7% in 2000 to 12% in 2013. The rise of emerging economies is also illustrated by the eastward shift of the world’s economic centre of gravity, which is occurring at a faster speed than ever before in human history.

This has been accomplished without any evidence of market disruption or volatile price movements; it has been, as former Chair Janet Yellen once said, like “watching paint dry.” 12 The charts in Figure 4 also show the projected progression of the portfolio for the rest of the year. Runoff from the balance sheet increases over the projection horizon, as the caps attain their terminal value later this year. As had been expected at the start of the program, principal repayments from our agency MBS portfolio are projected to eventually start coming in below the level of the caps. Based on current projections, principal payments on the Federal Reserve’s holdings of agency MBS would likely be lower than the monthly cap on redemptions that will be in effect beginning in the fall of this year. Consistent with the Policy Normalization Principles and Plans, when this occurs in a given month, no reinvestment occurs, and the portfolio size declines by the amount of principal repayment. It is important to remember that mortgage principal repayments are uncertain; are sensitive to various factors, particularly long-term interest rates; and could conceivably rise above the level of the cap in the future, particularly if interest rates were to decline. If this were to occur, those amounts above the cap would be reinvested. The cap-based program to normalize the balance sheet was designed at the start to operate exactly in this way: it is the mechanism by which the decline in the balance sheet is kept to a gradual and predictable pace.
As part of regional financial cooperation and a  BIS Review 24/2003  3  step towards greater regional financial integration, cross guarantees can reduce the cost of funding for smaller economies with lower credit rating through guarantees provided by more advanced nations. The use of cross guarantees will be similar in principle to the use of credit enhancements, resulting in improved credit risk of bond issuances as well as lower funding costs for bonds. But while credit enhancement can be offered by a third party, cross guarantees are made by countries within the region in an effort to collectively develop the region. A number of concerns may arise with the use of cross guarantees, namely the problems of moral hazard arising from any type of guarantee, the resultant price distortion, and the perceived free rider problem of the smaller economies. To lessen the risks that would arise from moral hazard, such a guarantee may only be partial. The problem of price distortion will be difficult to mitigate, given that bonds issued with cross guarantees by definition will not have their total risk reflected in price. However, this in turn will help benefit issuers in terms of lower cost of funding. With regards to the free rider problem, it is clear that a system of cross guarantees will benefit the lesser developed economies most, since they will not be in a position to guarantee any other issuers.

Article 4 (2) of the revised Act specifically states that it shall be one of the objective of the Bank to “ensure the stability of the financial system.”  2  The core principles recommended by the Committee on Payment and Securities Settlement Systems of the Bank for International Settlements (BIS). 2  BIS Review 50/2004  committee dealing with financial stability, the Banking Supervision Committee, and at the EU level the Bank also participates in the Economic and Finance Committee and in its Financial Stability Table. The importance of two-way cooperation with the MFSA The initiatives I have described have strengthened the Bank’s ability to monitor and analyse developments in the financial system in a wider context. It is nevertheless becoming increasingly clear that to carry out this role effectively, the Bank’s efforts in this area need to be supported by the activities of the overall supervisor in the financial field, that is the MFSA. It is, therefore, reassuring to note that good co-operation already exists between the Bank and the Authority. More specifically, the Authority’s focus on the health of individual service providers complements the Bank’s macroprudential analysis of the financial system as a whole and its oversight of the payment and settlement systems. In undertaking their respective tasks, both these institutions have access to information that may not be readily available to the other.
Exchange rate flexibility is a key component in any policy mix to reduce currency mismatches. Indeed, this is an example of a macroeconomic policy that also contributes to financial stability. In the case of Chile, and elsewhere in Latin America, we saw currency mismatches drop after currencies were allowed to float following the Asian crisis, as agents and regulators adjusted to increased exchange rate volatility (Figure 3). Indeed, bank regulation should not only incorporate currency risks explicitly, but also indirectly by dealing with the credit risks that arise from currency mismatches in the corporate sector. Finally, the growth in size and complexity of the financial system that often accompanies capital flows calls for a continuous process of revision in micro prudential regulation. One of the key elements to consider here is the scope of financial regulation and supervision. For a start, in periods of abundant foreign capital, intermediaries that have not accessed crossborder financing may begin doing so, lacking both the adequate regulation and internal risk management. Furthermore, if prudential regulation on traditional intermediaries tightens in these episodes, incentives are increased for by-passing these intermediaries. An additional  4  BIS central bankers’ speeches  element to consider is the speed at which financial innovations are incorporated into middle income economies. For sure, large global financial institutions have incentives to expand the scope of their financial services.

Consequently, it does not seem right to me to call Spanish banks “traditional”: Spanish banks bend over backwards for the customer, obtain information and management advantages from their detailed knowledge of their customers and have demonstrated their innovative capacity in the marketing of different products, in their risk control and management mechanisms, and in the application of organisational developments and technological processes, enabling the sector to become one of the world's most advanced and efficient. What will happen to banks in Spain over the next few years? The road travelled so far has thus seen the entrenchment of a banking system with a proven capacity to manage risk and high levels of profitability, efficiency and solvency. This system has contributed decisively to the Spanish economy’s continuously strong growth since 1994 and has withstood the first two phases of the international financial crisis well. At the onset of what I have called the third phase of the crisis, the sector is in a strong position. Moreover, the Banco de España has the ability and experience to resolve the most complex situations without damaging savers or the economy as a whole. However, although there is no sign of problems at Spanish banks in the short term, there is a temptation to which we bank supervisors must never succumb: complacency. Thus, I feel obliged to conclude by identifying the challenges that the Spanish banking system is going to face and suggesting the action necessary to overcome them with the greatest guarantee of success.
14  BIS Review 68/2002  The immediate question is whether changes in asset prices have led to an imbalance within the economy that poses the risk of a large negative demand shock at some point in the future. I believe the answer is yes; but how big is that risk is extremely difficult to judge, and so the appropriate policy response is far from clear. Beneath the surface of overall stability in the UK economy lies a remarkable imbalance between a buoyant consumer and housing sector, on the one hand, and weak external demand, on the other. As a summary statistic of this imbalance, Table 4 shows that in the United Kingdom the growth of real domestic demand exceeded the growth of output by no less than 7½% over the five years to 2002 Q1, more than over any five year period in the 1980s and more than in any other major country during the recent past. Even the optimistic Mr Micawber would realise that this cannot continue indefinitely. How then, and over what timescale, will these imbalances unwind? Table 4 Domestic demand and output growth UK  US  Euro area  Japan  Output growth (1997-2002 Q1)  2.4  3.2  2.5  –0.4  Dom.

The only periods in which persistence was lower than in the 1990s was in the early 1930s and early 1960s. 2  If index-linked contracts were widely used the relevant real rate would be the index-linked rate. And if the risk premium were determined largely in an integrated world capital market without frictions then again the real rate would be the riskless indexlinked rate. 2  BIS Review 68/2002  Table 1 Inflation in the UK Mean  St. dev  1950-1959  4.14  1.06  1960-1969  3.65  0.72  1970-1979  13.07  1.81  1980-1992  6.40  1.14  1993-2002  2.49  0.24  1950-2002  5.93  1.41  Note: Mean inflation is the total increase in the quarterly price level (RPI until 1974, RPIX after 1974) over the period indicated, expressed as a four-quarter growth rate. Standard deviation is calculated on quarterly inflation rates (not annualised) over the period indicated. Data up to 2002 Q3. Source: Bank of England calculations based on ONS data.
Elvira Nabiullina: Review of recent inflation developments in Russia and economic outlook Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, in the follow-up to the Board of Directors meeting, Moscow, 11 June 2021. * * * Today, we have decided to raise the key rate by 50 basis points to 5.50% per annum. As inflationary pressure has notably strengthened, we need to ensure price stability consistently and actively. We see the necessity of further increases in the key rate at upcoming meetings. Let me dwell on the factors behind the today’s decision. First. The Russian economy will return to its pre-crisis level during this quarter. Its H1 growth exceeds the pace we factored in in the April forecast. Leaving out restrictions on oil production and international passenger travel, it is clear that the output in most key industries has not only bounced back to the end-2019 level but outstripped it. Russia is among the group of countries that will be the first to reach the pre-pandemic level of output. It is typical of the current situation in many sectors of the economy that growth in demand is outpacing the potential to expand supply. Companies need time to roll out new capacities, and also hire and train staff. Demand is growing both domestically and abroad. The activation of external demand is underpinned by a faster-than-previously-anticipated rebound in the global economy and trade. The main reasons are abating epidemic risks, given vaccination rates, and extremely loose monetary and fiscal policies in major economies.

Pursuing monetary policy to stabilise inflation and raising the key rate to achieve this, the Bank of Russia curbs growth in long-term interest rates in the economy. This quarter experience is a good illustration of the above. Despite the increase in the key rate on three occasions since last March for a total of 125 basis points, the yields of long-term OFZs are currently on the same level as in late March. As far as the pace of lending growth is concerned, it remains high both in corporate and particularly retail segments. Thus, mortgages are rising by more than 25% year-on-year. In addition, retail loans are heating consumer demand. We are also concerned by the fact that lending is growing due to loans to borrowers with a high debt burden. Therefore, we resume prepandemic macroprudential add-ons on unsecured loans from 1 July and on mortgage loans with a low down payment and a high debt-to-income ratio of borrowers — from August. The Bank of Russia will stand ready to further increase macroprudential add-ons to prevent the accumulation of systemic risks and to ensure financial stability. Since our meeting in April, the balance of risks has tilted even more towards proinflationary risks. Elevated inflation expectations as a response to high inflation and low interest rates still pose a major risk. With fears of future price growth, people tend to spend more today and save less for tomorrow. This makes prices grow even more rapidly. Disinflationary risks look weaker.
The banking union should contribute to breaking the still-prevalent link between banking and sovereign risks, a link that largely explains the persistence of an appreciable degree of European money and financial market fragmentation. This is incompatible with the normal functioning of the monetary union and prevents the loose single monetary policy stance from being transmitted uniformly to households and firms throughout the area. I shall now move on to the Spanish economy. In Spain, our experience since the outbreak of the crisis has been extremely difficult. We have witnessed a double-dip recession, something unprecedented in our economic history over the last half-century. Adjustments were needed to overcome the serious real and financial imbalances – namely the budget deficit, private and public debt, the external imbalance and unsustainable activity in the construction sector – which began to build up in 2002-2003, during the period of real negative interest rates in the United States and in the EU. And matters worsened with the international financial crisis and the confidence crisis in the euro area, the latter driven by the public finances crisis in several countries, Spain among them. Three figures suffice to illustrate the severity of the crisis in Spain: in 2013 our GDP will be 7–8% below the cyclical peak (marked by the second quarter of 2008); national demand will be 16% lower; and employment 20% down. But we are correcting these imbalances.

We have recently conducted a survey of the financial institutions to check their readiness to conform to the credit risk guidelines under the New Accord. I have been reported that many plan to be ready for the standardized approach, while others are working towards the IRB approach, this is a welcome news. More importantly, financial institutions have all started the effort to strengthen risk management in their respective institutions with some notable progress so far, and we look forward to more progress to come. I would like to take this opportunity to commend all of you for such efforts. After all, the BIS capital requirement only serves as a cushion of losses or failure of an institution whereas it is the risk management that reduces the chance of failure. The significant progress you have made in the area of risk management deserves our full support and commendation, particularly so as this is a very difficult time for the financial industries. Ladies and gentlemen, Coming back to the issue of preparation for the New Accord, one can see that significant challenges remain ahead. I will now turn to these challenges. First, the technical and infrastructure aspects. It is important to build up a deep understanding of the technicality of approaches and methodology underlying the New Accord. Moreover, it is critical to achieve in-depth knowledge of risk management and the impact of such developments on business model of the financial institution. Therefore the task ahead is very challenging, far beyond just acquiring software that would crank out numbers.