samchain/econo-pairs-v1 huggingface dataset:
The Vertical Phillips Curve Inflation (% ) 15  10  5  0 0  2  4  6  8 10 Unemployment (% )  12  Chart 2. The United Kingdom Phillips Curve, 1993-2005  BIS Review 52/2006  1  Inflation (% ) 15  10  5  0 0  2  4  6  8  10  12  Unemployment (% )  Source: ONS. The unemployment rate used here is the Labour Force Survey measure. Inflation is measured using the Retail Price Index excluding mortgage interest payments (RPIX). So what is going on? The explanation is, I believe, straightforward, but it contains some important lessons for the conduct of monetary policy today. In the 1950s and 1960s our experience was that the rate of structural unemployment was rather stable, so that large swings in the growth rate of money spending eventually showed up in movements of inflation. In those circumstances the Phillips curve does indeed appear vertical. But since 1992 monetary policy has kept inflation broadly constant – within 1 percentage point of its target every single month since December 1992 – while structural changes have reduced the sustainable rate of unemployment in every part of the United Kingdom – including Scotland. So the Phillips curve appears horizontal. In the decade up to 2004, that is until the recent slowdown, unemployment fell from double-digit levels to around 5% on the internationally comparable measure and to 3% on the claimant count.

Nothing is settled, and the French presidency will need to deepen and strengthen the main avenues that are currently the subject of global consensus. This is already a huge task. But the greatest responsibility that I see for the future presidency is the correction of large external imbalances at the global level; such a correction is crucial if we are to avoid another major crisis in the future. And in Seoul the G20 explicitly asked the French presidency to work on criteria for measuring these external deficits and surpluses. The financial crisis is over, but its effects can now be felt in terms of the economy. Do you believe that all the necessary lessons have been learned in order to avoid a new global crisis when one sees measures here and there that are perceived as protectionist, in particular in the United States and China? We are in the midst of reflecting at the international level on the lessons to be learned from the crisis. This is a considerable task and it is being undertaken by the whole of the international community, including emerging market economies. It will take some time. For example, in order to make the global financial system much less vulnerable, much more robust, the measures proposed by the Basel Committee and adopted by the G20 will necessarily take time to implement, given their scale. This applies in particular to a very considerable increase in banks’ capital requirements at the global level.
Carving out resilience from within is always less painful than having to build it anew. Like their counterparts in the euro area, our banks have strengthened their balance sheets and capital positions in recent years, and this ensures that the sector is wellprepared to adapt to risks as, and when, they materialise. Our stress tests also confirm that capital remains above regulatory requirements even under extreme scenarios, and that banks are operating with healthy liquidity buffers. Profitability is also improving, so it is opportune to strengthen capital buffers rather than to have to re-build them in a potentially less benign environment at some point in the future. 3/5  BIS - Central bankers' speeches  It is less painful to provide adequately for credit risks and the stock of doubtful loans through the cycle, rather than having to deal with a potential increase in non-performing exposures at some other time in the future. Thus, an increase in forborne loans - mostly reflecting the expiration of pandemic related loan moratoria - need to be addressed at some stage or another. In this respect, I am pleased to note that banks have proven to be quite conservative when providing for risks during the Pandemic. I encourage banks to be proactive in complying with micro and macro prudential policies when formulating distribution policies going forward. Foresight is key, as the generation of resilience from within is ultimately what drives the long-term value of any firm's equity and its stability. Of course, macroprudential policy has to do its part.

Investment on the contrary has fallen less than expected due to the dynamism in specific sectors (energy, public transportation) while its fundamentals continue to anticipate a weak performance. In this context, long-term interest rates have resumed an upward trend since the beginning of September, with 10-year peso rates close to 7% and indexed rates at 2.6%. These levels were observed in October 2021 and before that in February 2011. Most of this recent increase is related to external financial conditions. Consumer interest rates are at 28%, while commercial rates are around 15%, values not seen for more than a decade. Meanwhile, housing rates remain at just over 4%. Real 2  Bilateral Meetings  commercial and consumer loans fell by more than 2.2% and 3.0%, while housing loans grew by 2%. Projections and monetary policy decisions  A key driver for declining inflation is that the economy continues with the adjustment process which started this year, after the large imbalances it accumulated in 2021. In our forecasts, the economy will begin to contract in annual terms from the end of the third quarter of 2022 and continue to do so in 2023. This will keep the activity gap in negative territory for several quarters, which is consistent with the spending adjustment required to reduce inflation to the 3% target within two years. The spending adjustment will also reduce the high level of the current account deficit.
This of course puts upward pressure on prices, but also downward pressure when prices rebound and many people want to sell. In both Australia and the United Kingdom, prices have levelled out in recent months after short-term interest rates rising in these countries as their central banks increased their key rates. However, in Sweden both household borrowing and house prices appear to be continuing upwards, partly as a result of expectations of continued low interest rates. Moreover, the competition between banks has increased, which has led to more aggressive marketing, lower collateral requirements and longer amortisation periods. It is possible to begin to detect a scent of the reckless 1980s, one cannot deny it. There is therefore every reason to increase our vigilance, and we have recently emphasised the developments in credit and house prices as a further argument, although in my opinion perhaps not a particularly strong one, against more expansionary monetary policy. It is nevertheless important to point out that so far we have seen no signs of unwarrantedly large price rises and overheating in the housing market; in Sweden prices are still essentially governed by the normal supply and demand relationship. However, taking into account developments in asset prices is a further argument in favour of interpreting the inflation target with some degree of flexibility. Households and financial stability Let me now for a moment leave the inflation target and concentrate on some reflections regarding the Riksbank’s other objective, to promote a safe and efficient payments system.

It is important that monetary policy, if necessary, can be allowed some scope and flexibility when the economy is subjected to various forms of shock and disturbance. If this is to happen, it is essential that there is a high degree of confidence in monetary policy. I believe that we have achieved this, largely thanks to a large degree of openness and transparency with regard to the bases for our monetary policy. Inflation expectations two years ahead and further have been well in line with our target since the regime stabilised in 1997-1998. The way we have clearly defined and explained our considerations has enabled us to create room for manoeuvre, which we have also utilised over the years. In other words, we have had fairly substantial freedom to deviate from target without affecting confidence in our policy. Another factor significant for the interest rate decisions is the length of the forecast horizon. As I mentioned earlier, the Riksbank works on the basis of a time perspective of two years, as this is how long it takes before interest rate adjustments have full impact on inflation. However, since December 2000 we have often found reason to supplement this horizon with a qualitative assessment covering a slightly longer period. The March 2005 Inflation Report took a further step forward, presenting more detailed forecasts beyond the two-year horizon and using the assumption that the repo rate would develop in line with implied forward rates, with the aim of increasing understanding for the Riksbank’s reasoning.
Georgiadis, Georgios and Arnaud Mehl (2015), Trilemma, Not Dilemma: Financial Globalisation and Monetary Policy Effectiveness. Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 222. Gordon, Robert J. (2012), Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds. NBER Working Paper No. 18315. Gordon, Robert J. (2015), Secular Stagnation: A Supply-Side View. American Economic Review, 105(5), 54–59. Krugman, P. (2014), Inflation Targets Reconsidered. Essay presented at ECB Sintra Conference, May 2014. Kryvtsov, Oleksiy and Mendes, Rhys R. (2015), The Optimal Level of the Inflation Target: A Selective Review of the Literature and Outstanding Issues. Discussion Paper 2015-8, Bank of Canada. Laubach, Thomas and John C. Williams (2015), Measuring the Natural Rate of Interest Redux. Federal Reserve Bank of San Francisco Working Paper 2015–16. Meier, Simone (2013), Financial Globalization and Monetary Transmission. Federal Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper No. 145. Obstfeld, Maurice (2015), Trilemmas and Tradeoffs: Living with Financial Globalization. BIS Working Papers No. 480. Rachel, Lukasz and Thomas D. Smith (2015), Secular Drivers of the Global Real Interest Rate. Staff Working Paper No. 571, Bank of England. Rey, Hélène (2015), Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence. NBER Working Paper No. 21162. Rogoff, Kenneth (2015), Debt Supercycle, Not Secular Stagnation. Column VOX, http://voxeu.org/article/debt-supercycle-not-secular-stagnation. 12  BIS central bankers’ speeches  Skingsley, Cecilia (2015), Inflation-targeting policy after the financial crisis. Speech at Almega, Stockholm, 22 May. Summers, Lawrence (2013), Why Stagnation Might Prove to be the New Normal.

Financial Times, 15 December. Turner, Adair (2015), The Case for Monetary Finance – An Essentially Political Issue. Paper presented at the 16th Jacques Polak Annual Research Conference, IMF, 5–6 November. Yellen, Janet L. (2015), Inflation Dynamics and Monetary Policy. Remarks at The Philip Gamble Memorial Lecture, University of Massachusetts, 24 September, Board of Governors of the Federal Reserve System. BIS central bankers’ speeches  13
In addition, household net worth has recovered sharply, boosted primarily by higher financial asset valuations, but also by some recovery in home prices. Third, the fiscal restraint that has held back growth in recent years has ended, with the federal budget deficit now at a level consistent with a stable to slowly declining federal debtto-GDP ratio. In the aggregate, state and local governments have also ended their retrenchment. One important piece of evidence in this regard is the fact that state and local  1  See, for example, the latest Blue Chip consensus survey (volume 39, no. 11, November 10, 2014). The median real GDP forecast for 2015 (fourth quarter over fourth quarter) is 2.9 percent. BIS central bankers’ speeches  1  government employment is now rising at between 5,000 and 10,000 per month, after generally contracting during the 2009 to 2012 period. Now that these headwinds have subsided, buoyant financial market conditions spurred, in part, by a very accommodative monetary policy should do more to support economic activity. In particular, compared to historical patterns, the current household net worth-to-income ratio is high relative to the personal saving rate. This suggests some scope for a decline in the household saving rate. If this were to occur, consumption growth would outstrip income growth. Similarly, financial market conditions are conducive to sustained gains in business fixed investment. Equity prices are high, borrowing costs are low, cash flows are strong and corporate balance sheets are healthy.

One could thus say that, in this case, the reason one may want to prevent a balance sheet recession is because of monetary policy considerations – one wants to stabilise inflation and the economy as a whole – rather than to maintain financial stability. Those occasions when I have advocated a policy of “leaning against the wind”, that is, holding the policy rate a little higher because I perceive risks in a rapid increase in lending and house prices, this is the sort of problem I have had in mind. A further aspect of the problem is that in countries like Sweden most people buy a house or apartment to live in, not to rent out. Nor do we have the possibility that exists in some countries of handing the property over to the bank when interest payments become too much, and thus getting rid of the loan. When interest rates rise or one wants to pay off one’s debts, one simply cuts down on other expenditure. One could thus speculate as to whether the risk of financial instability resulting from an over-mortgaged household sector is less here, but on the other hand the effect on demand in the economy when households begin saving is greater. Interplay between monetary policy and macroprudential policy The two areas I have discussed so far have concerned monetary policy possibly contributing to a credit-driven bubble, and the fact that it may not be particularly effective when the bubble has burst.
This resulted in rising allocation to the bonds of countries with increasing debt. The risk linked to this strategy became clear in the wake of the financial crisis. A reallocation of government debt on the basis of GDP weights will reduce this risk. Moreover, we have started investing in government debt issued by emerging countries. The consequence of this is a reduction in the Fund’s European holdings. Increased demand for the safest government bonds may be regarded as an adjustment to the climate of high spreads and volatility that we have witnessed in recent years. In a market environment characterised by general uncertainty, market expectations might cause a slight increase in risk premiums to mount rapidly, unless the underlying cause of the increased risk premiums is dealt with by the relevant authorities. To sum up: a downweighting of Europe, the introduction of GDP weights as the basis for asset allocation, and increased risk premiums of certain bonds have all contributed to our present positions. During the past year, the Fund has reduced its exposure to some European government bonds, most notably Italian and Spanish bonds. Slide 15: Risk has many facets Credit risk is not the only risk attracting attention in portfolio management. It is our view that unequal treatment of investors during the restructuring of Greek government debt in March this year, contributed to increase European risk premiums.

Speech  Embargo 20 September 2018, 5.30 pm  Third Karl Brunner Distinguished Lecture Introduction of Otmar Issing, ETH Zurich  Thomas J. Jordan Chairman of the Governing Board Swiss National Bank Zurich, 20 September 2018 © Swiss National Bank, Zurich, 2018  Page 1/4  Ladies and gentlemen, I am very pleased to welcome you all to the third Karl Brunner Distinguished Lecture. In this Lecture Series, the Swiss National Bank pays tribute to academics whose research is of particular relevance for central banking. This year, we are expressing our appreciation of an outstanding monetary policy theorist and practitioner, an independent mind and a leading voice in economic affairs. From this description, you may doubt that I am talking about just one person. But I am. That person is, of course, Otmar Issing. Professor Issing’s life has been extraordinary and widely admired. His scholarly activities and policymaking contributions have been both impressive and mutually reinforcing. His publication list includes numerous articles in scientific journals and periodicals. His collected speeches and articles in the library of the Bundesbank amount to 21 volumes of about 10,000 pages. His textbooks have shaped the understanding of monetary theory and policy of entire generations of students, myself included. While there are many reasons for the SNB to honour Otmar Issing with this Karl Brunner Lecture, three stand out: his role as chief architect of the European Central Bank’s (ECB) monetary policy strategy, his tireless commitment to price stability, and his significant influence on general economic debate.
Yes, we have had one or two very highly publicised revelations on legacy problems – but none of that should take away from the fact that the UK system is stronger today, in my view markedly so. But, I can tell you that achieving such progress on this public good has not been as straightforward or uncontroversial as you might think. And that continues to concern me, because it conveys the message that acceptance of the benefit of the public good is not as entrenched as it needs to be – we have work to do to build the consensus around what constitutes financial stability. I am firmly of the view that last year’s actions on capital were correct, and I have no doubt at all that the recovery in bank lending to support economic activity requires a belief and an expectation that the banking system is and will remain well capitalised, and that if we doubt either of these positions, action will be taken. And that is why we, and other countries, are introducing, or have done introduced, regular stress tests. It is about regulation being forward-looking and using judgement. The second point I would make here is that a stable financial system is a necessary precondition of realising other benefits. Let me give a few pertinent examples. The first one comes from the insurance industry, in which I also have a very strong interest. The Government announced some very major reforms in the Budget to the provision of pensions, notably in the annuities market.

Incoming information, while somewhat weaker than expected, remains overall consistent with an ongoing broad-based expansion of the euro area economy and gradually rising inflation pressures. The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding-down of our net asset purchases. At the same time, uncertainties relating to protectionism, vulnerabilities in emerging markets and financial market volatility remain prominent. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner. Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.4%, quarter on quarter, in both the first and the second quarter of 2018. Incoming information, while somewhat weaker than expected, remains overall consistent with our baseline scenario of an ongoing broad-based economic expansion, supported by domestic demand and continued improvements in the labour market. Some recent sectorspecific developments are having an impact on the near-term growth profile.
It is considerably above the range the SNB equates with price stability, namely between 0% and 2% over the medium term. How is the SNB handling this situation? We made our initial response to the emerging inflationary pressure already in the final months of last year. At the time, both inflation and also our inflation forecast were still at a low level. Abroad, however, inflation had already increased markedly. In order to reduce the inflationary pressure from abroad, at our monetary policy assessment in December 2021 we announced that the SNB would allow the Swiss franc to appreciate to a certain extent in nominal terms. The Swiss franc appreciated nominally by around 4% between autumn 2021 and spring 2022, making imports cheaper and so countering the general increase in prices. In June 2022, we then raised the SNB policy rate by half a percentage point to –0.25%. Yesterday, we tightened our monetary policy further and raised the SNB policy rate by 0.75 percentage points to 0.5%. It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term. To provide appropriate monetary conditions, we are also willing to be active in the foreign exchange market as necessary. Our tighter monetary policy is countering the renewed rise in inflationary pressure and the spread of inflation to goods and services that have so far been less affected.

At the same time, we have a very close co-operation with our colleagues on the other side of the Atlantic, which proved to be useful precisely in the times we are living. The international meetings, in particular the global economy meeting of central bank governors and the G20, provide regular forum for a thorough and open discussion between the participating  2  BIS Review 18/2009  Governors, particularly with Governor Zhou, who plays a very important role in these meetings. China Finance: To what extent do you see the need to reform the international monetary system and the global financial regulatory system in the light of lessons learned so far from the ongoing financial crisis? Trichet: The current crisis stands out because it affects the heart of the global financial system. Its root cause was a wide-spread underassessment of the quantity of risks and marked an undervaluation of the price of risks in the global financial system, especially in the most advanced economies. One of the reasons why this could happen was the widely held view that regulation should not stifle financial innovation and that markets knew best and could – for the most part – regulate themselves adequately. The turmoil has shown that this attitude was deeply misleading. When the turmoil set in, many financial institutions realised that their risk management systems were not as reliable and robust as they had believed them to be and, indeed, should have been.