samchain/econo-pairs-v1 huggingface dataset:
Tightening policy sharply in order to deal with the currently elevated level of inflation would simply have put a brake on the recovery unnecessarily and would have made inflation more likely than not to fall below the target in the medium term. If all goes to plan, however, and private final demand continues to pick up the baton as the fiscal consolidation proceeds, then the margin of spare capacity will shrink and it will at some juncture become appropriate to begin withdrawing the current extraordinary degree of monetary stimulus. And, when that point comes, the MPC will aim to do so in a timely, but measured, fashion. As 2010 draws to a close, the good news, then, is that the recovery, here and more widely, has remained on track, following the sharpest downturn in activity since the Great Depression. Such an outcome was by no means guaranteed twelve months ago; for that we must be grateful. But there remain significant challenges for the year ahead. In many developed countries, the after-effects of the financial crisis still linger, in the form of banks that are still overly reliant on official support, fragile household and business confidence, and bloated public sector deficits and debt. Moreover, the rapid recovery in emerging markets  BIS Review 169/2010  5  has reawakened global inflationary pressures. And here in the United Kingdom, inflation has been running above the MPC’s 2% target for an uncomfortably long time. It may be some while yet before normality is restored. Thank you.

Business surveys are consistent with this, implying that the margin of spare capacity in firms is now relatively limited – in fact not much larger than after the bursting of the dotcom bubble. But against that, it is difficult to find any direct evidence of supply impairment. For instance, liquidations have been running at less than 1% (compared to 3% in the 1990s recession). One resolution of the puzzle may be that producers have mothballed capacity, which could, at a cost, be brought into use if demand conditions warranted. The MPC’s view is that the current elevated level of inflation is likely to persist in the near term – indeed our central expectation for inflation is somewhat higher than that of outside commentators. Ultimately, however, this period of elevated inflation should prove temporary. The standard rate of VAT is set to rise again at the beginning of next year, but once that drops out of the annual comparison a year later, so the inflation rate is likely to fall back sharply. The impact on prices of sterling’s past depreciation should be starting to wane. And the relatively moderate expansion that we expect over the next year or two should ensure that there is some, albeit uncertain, brake on inflation from spare capacity. We have seen muted underlying inflation pressures in both the euro area and the United States, reflecting the spare capacity in those economies, and there is no reason to believe that the United Kingdom will behave differently once the temporary influences subside.
It may also be difficult to predict financial market reactions to very low and negative real interest rates. As early as 1967, US economist William Brainard discussed how central banks should respond to economic shocks when there is uncertainty about the impact of the policy rate on the economy. He concluded that the policy rate should be used with greater caution when uncertainty about its effect increases (Brainard (1967)). This involves a trade-off that can be illustrated graphically. Chart: Monetary policy and uncertainty This chart describes a situation where the policy rate is used to counteract the effect of a negative shock to the real economy. Two different interest rate paths are shown. The uncertainty is illustrated using bands around the expected paths for the policy rate, inflation and the output gap. In the scenario denoted by the blue line, the central bank does not take the uncertainty associated with the interest rate into consideration. In contrast, the yellow line represents a scenario based on a more cautious monetary policy response to the perceived uncertainty involved. The expected real economic costs of a more cautious response – as measured by the output gap – are somewhat higher, and inflation moves further from the target. In that respect, this is a less appropriate path for the policy rate. But there is also a benefit: uncertainty about the future path is substantially reduced. As you can see in the chart, the uncertainty bands around inflation and output have narrowed.

When choosing between the two paths, the benefits must be weighed against the costs. In principle, a robust monetary policy should take account of uncertainty regarding the functioning of the economy. The policy rate in Norway has come down to a low level, approaching a lower bound. This has increased the uncertainty about the effect of monetary policy. Norges Bank has taken this uncertainty into account over the past year and reacted somewhat less to new information, whether the information has pulled in the direction of a lower or a higher policy rate. It has been appropriate to respond with caution. LOW INTEREST RATES COULD BE A PRECURSOR TO FINANCIAL INSTABILITY A period of low interest rates can engender financial imbalances. There is a risk that growth in property prices and debt will become unsustainably high over time. With high debt ratios, households are more vulnerable to cyclical downturns. In the event of a reduction in household income, debt burdens may become heavy to bear, forcing households to reduce spending on consumption, with a deeper downturn as a result. For Norges Bank, the consideration of restraining the build-up of financial imbalances has long been an element of a robust monetary policy. The aim is to mitigate the risk of particularly adverse economic outcomes further ahead. Chart: Estimated path for consumption during recessions A recently published study by Norges Bank examines developments in private consumption during recessions. The analysis is based on data from 61 international recessions in the past four decades (Hansen et al (2015)).
One of the most comprehensive evidence has been produced for New Zealand’s firms, showing that inflation expectations among business leaders are not so different from household expectations. In Europe, Banca d’Italia has also developed a very rich and informative firms’ expectations survey since 1999. The Bundesbank has also conducted a very interesting survey asking tradeunions and employers what was the relevant inflation underlying the last collective wage agreement. Comparative information on such issues across the Euro area would be very useful. I am convinced that more analysis on firms’ expectations would produce very valuable and relevant information for our monetary policy. Conclusion Let me now conclude by saying that we need to better measure consumer and firm inflation expectations. This lack of information prevents our communication policies from being fully efficient. One important question for monetary policy is what kind of communication tools can be used to better communicate with the general public and influence their inflation expectations. This conference is a unique opportunity to benefit from the analyses of the most distinguished experts on the various exciting issues that are related to household expectations. I wish you very fruitful discussions. Thank you for your attention. 4  Figure 1. Long term inflation expectations for the Euro area  Source: BIS report “Recent developments in the global economy” (August 2019) -  5  Figure 2. Households perceive quite well the overall evolution of inflation  Source: B. Coeuré (2019).

Indeed, I find it hard to understand how an earnest rating agency might assess sovereign risk without even referring to that country’s level of public debt and international reserves. As a professor, I can safely assume that the “subject is not treated”, hence the conclusion is unsubstantiated. As concerns these assessments, I must say however that things are not in the least that simple. Of course, we could assert that at present our economy is in a better position than those of other countries in the region rated within the “investment grade” range. But those countries have at least adopted austerity measures at domestic level. How do things stand in our country? After two consecutive years of wage increases in a range from 20 percent to 25 percent per year – i.e. more than twice the labour productivity gains – the wage rises envisaged for 2009 ranged between 50 percent and 60 percent, whereas the agreements with the trade unions, whenever struck, do not provide for hikes lower than 35 percent. Such an approach reveals a dangerous decoupling between aspirations and reality. In the current international context and given the already dangerously high level of external deficit, we must not aim at further increases in domestic consumption above labour productivity gains, since there are no more financing sources for something like that. And unless we understand this state of affairs ourselves, rating agencies are going to warn us.
9, 10 Growth has certainly been high over the last 12 months, so isn’t this a reason for tightening monetary policy? Here it is important to remember that monetary policy does not aim to stabilise growth. It aims to stabilise inflation and resource utilisation. The impact of increased growth on monetary policy depends on the impact of this growth on the forecasts for inflation and resource utilisation. Whether high growth indicates higher or lower resource utilisation depends on the reasons for the higher growth. In this respect there is no difference between growth and other indicators of the state of the economy. The extent to which they affect monetary policy depends solely on how they affect the forecasts for inflation and resource utilisation. If monetary policy is well-balanced in the initial position – a strong assumption – and growth shifts both the inflation forecast and the resource-utilisation forecast upwards, then increased growth is a reason for tightening monetary policy. However, if monetary policy is not well-  6  See for example Dagens Industri (2011), Eklund and Svensson (2010), Financial Times (2011a, b) and Frisén (2010). 7  See Svensson (2005) and Svensson and Tetlow (2005). 8  One possible exception may be if the repo-rate path were to pose a threat to financial stability and there were no other means that could be used to tackle the problem. See the discussion in Svensson (2010b, c). 9  See Giavazzi and Mishkin (2006) and Mishkin (2010).

As Bank of Zambia, we believe that the recent economic developments, such as, the attainment of single digit inflation for the first time in three decades in April 2006 and sustaining low-level inflation for nearly three consecutive quarters so far to November 2006 are supportive of this initiative. These developments also indicate that Zambia is able to rally foreign private capital to improve the domestic financing limitations and support efforts of encouraging faster economic growth, private sector investment and exploitation of the country’s huge potential in various sectors. Ladies and gentlemen, we also believe that events such as this complement the outcomes of Government’s economic reform agenda which in part is aimed at strengthening our country’s creditworthiness as demonstrated by the attainment of the enhanced Highly Indebted Poor Countries Initiative (HIPC) completion point in April 2005. Ladies and gentlemen, please allow me to elaborate. In order to strengthen and sustain our new status as a creditworthy economy following the attainment of the HIPC completion point, the Bank of Zambia, together with Government, is working on ensuring that our institutional arrangements are supportive of keeping the global investor audience, amongst others, informed about domestic economic developments transparently and on an ongoing basis. For instance, we believe that obtaining a formal sovereign credit rating would help us build part of the necessary institutional arrangements of keeping all stakeholders informed.
Nor do I have any claim to originality – Milton Friedman and Anna Schwartz wrote in their monetary history of the US that the most notable feature of the revival of the US economy after 1933 was not its rapidity but its incompleteness[1]. I, and other MPC members, have also used the analogy of a bridge to describe the role of economic policy in the age of Covid, the bridge to the other side of Covid. We are still on that bridge. The rate of recovery has slowed over recent months, and that slowing is continuing. Relative to the fourth quarter of 2019, on the latest data to July, the level of GDP was 3.5% lower. That’s around one percentage point below the level consistent with the August Monetary Policy Report. There is a crucial distinction here between growth rates and levels of activity. It is inevitable in a bounce-back that the growth rate will slow as the recovery nears its end-point. It is not though inevitable – or desirable – that the previous level is not regained. Recovery in some consumer-facing services appears to have been delayed. We had seen a recovery in activities such as eating in restaurants, but activity is levelling off, notwithstanding our contribution this evening. Consistent with the impact of supply bottlenecks and disruption, construction output fell in July, and manufacturing output stalled. Surveys and the reports of the Bank’s Agents, suggest the impact of these supply-chain issues is broadening out.

And, it follows, that in such a situation they should do just that, they should not hold back. But we are left with a puzzle in the labour market. Data from HMRC suggest that there were around 1.7mn jobs covered by the furlough scheme in July, and as a reminder it comes to an end later this week. The number of advertised job vacancies was at a record level in August of over 1mn. The number of people unemployed in the three months to July was 186,000 higher than immediately pre-Covid, and the number of inactive people was 634,000 higher. Now, of course, it is possible to reconcile these numbers, but to do so involves a lot of movement of people from furlough, unemployment and inactivity, in ways not so far seen. There are a number of possible outcomes to this puzzle, which have different implications for the labour market. The first is that the furloughed workers will largely be re-absorbed into their old jobs, and so even with a further reduction in unemployment and inactivity, we are left with an excess of job vacancies. If these excess vacancies are associated with shortages of workers in particular sectors, this may push up on wages. This could also happen if furloughed workers do not return to their old jobs, but are not suitable for those jobs and sectors where there are a high number of vacancies. In other words, there is a mismatch in the labour market.
This is necessitated by the still high sensitivity of inflation to oneoff factors, as well as its inertia and elevated inflation expectations. As they stabilise close to the target level of inflation, prices are expected to be less responsive to various short-term factors. These new conditions would see no need for additional tightening in the monetary policy stance to ensure that inflation holds near 4%. This conservative strategy in monetary policy may appear unattractive short-term; however it will enable us to deliver on a more sustainable result in the mid-term, that is, deliver on the objective to establish in Russia a low price and cost growth environment – such that favours both households and businesses, as well as the overall economy. Q&A for the Media QUESTION from Vedomosti: Given the Bank of Russia’s move to reduce the rate and its guidance that further rate reduction is not impossible in the second and third quarter, does that suggest that the Bank of Russia has launched a monetary loosening cycle? ELVIRA NABIULLINA: An easing cycle is understood as a process of sequential rate reduction, decided at each policy Board meeting. Having said that, we acknowledge that the sequence of rate cuts may be interrupted, though this would not run counter to an overall mid-term downward movement of the rate. We will move forward with care and precision. For the most part we will be largely guided by economic data as well as, certainly, by our forecasts.

Credit denominated in ALL maintained the average annual increase rate, by about 28-30 percent, but the slowdown of lending denominated in foreign currency has led to the decline of credit growth pace. The open market operations of the Bank of Albania met the liquidity needs of the banking system. Bank of Albania has injected all liquidity demanded from commercial banks, by preserving at the same time an accurate time structure of this injection. Notwithstanding the improved liquidity situation, yields rates in primary market have persuaded the increasing tendency of the current months. The increase of risk evaluation from banks is mainly reflected in the determination of long-term yields that is confirmed by the rise of 2 and 5-year bonds yields. The performance of new deposits interest rates denominated in Euro and ALL appears stable during July. New credits interests’ rates denominated in ALL have persuaded the decline in July, while this month recorded a tightening of new loan cost denominated in Euro. At the conclusion, by framing the forecasts for a relaxed inflation and within the target set out by the Bank of Albania for the future, the Supervisory Council of the Bank of Albania decided to keep the key interest rate unchanged. This movement is a continuance of the careful monetary policy pursued by the Bank of Albania during the year 2009, a policy which has aimed the transmission of controlled monetary stimulus and the keeping of inflationary expectations close to the targeted band of the Bank of Albania.
Instead the objective was to assess their capital needs under a deeper and longer recession than was the consensus in early 2009, and then require them to meet these capital needs in the very near term, before the adverse scenario developed. One important rationale for the program was that the presence of the additional capital would make the adverse scenario less likely. The credibility of this strategy was dependent on the availability of the U.S. Treasury’s Capital Assistance Program to provide capital if the private market was unable to do so. Moreover, a brave decision was made to be transparent about the procedures the supervisors were using in their assessment and to pre-commit to disclose detailed results. In addition, the main measure of capital needs would be in terms of common equity rather than the preferred equity that was used in the U.S. Treasury’s Capital Purchase Program. BIS Review 81/2010  7  The assessment process took just under three months to complete. It involved many innovations in the supervisory process that will continue to influence the approach to the supervision of large complex financial institutions in the future. The results of the assessment were striking. Under the more adverse scenario of a longer and deeper recession, the twoyear loss rates on average across the 19 banks were projected to be as high as experienced during the Great Depression. Further, this average hid an incredible amount of heterogeneity across both banks and asset classes.

6  BIS Review 81/2010  announcement had to direct thousands of institutions in the appropriate direction on equal terms, including a majority that had not been misbehaving in the run-up to the crisis. In particular, stronger institutions might view their agreement to use the guarantees and issue equity to the U.S. Treasury as stigmatizing and make them more vulnerable to runs. The solution was to obtain agreement from nine systemically important institutions to participate at the start of the time-out on the same terms available to thousands of other eligible financial institutions. The time-out announced on October 14 was a critical success in terms of stopping the run on the global financial system, but it could not and did not address all the aspects of the crisis. The global propagation of the financial shock had already triggered an economic slowdown at least as abrupt as any during the Great Depression period. The underlying question was now how strong the adverse feedback loop would be between the rapidly deteriorating real economy and the condition of the banking sector. One clear lesson from this phase was the need for formal coordination among the diverse authorities in the U.S. in establishing and maintaining financial stability. Another lesson that emerged was that some forms of regulatory and accounting capital were very weak defenses against the fear of insolvency. Both lessons are informing the ongoing work of regulatory reform and of enhancing the resiliency of the financial system through stronger capital and liquidity requirements.
Ajith Nivard Cabraal: Protecting financial systems from money laundering and terrorist financing activities Keynote address by Mr Ajith Nivard Cabraal, Governor of the Central Bank of Sri Lanka, at the World Bank Workshop on Capacity Enhancement for Anti Money Laundering and Combating the Financing of Terrorism, Colombo, 7-11 May 2007. *  *  *  Ladies & Gentlemen, Let me welcome you to the inaugural ceremony of this Capacity Enhancement workshop and extend to all overseas participants and representatives a very warm welcome to our country. I am also happy to be able today to share a few thoughts with you about the need to ensure the integrity of worldwide financial systems by protecting such systems from money laundering and terrorist financing activities. This is a challenging task as advancements in technology, especially in the financial services industry, have made it easier for criminals including terrorists to take advantage of liberalized financial markets, innovative technologies and the ease with which cross-border flows of financial transactions can take place. One of the most recent incidents in this regard is the sophistication with which, internationally active Tamil Tiger Terrorists have successfully perpetrated a massive credit card fraud in London costing the British public, according to reports, about 100 million Sterling Pounds by skimming credit cards belonging to the British public. Skimming has been a common technique used to raise funds for terrorists in Algeria, Kashmir and Chechnya, and now it is clear that it is being extensively practiced in the Western world too.

If unchecked, it may only be a matter of time, before terror groups in other parts of the world also emulate these dastardly attacks. It is therefore, vital that all countries quickly assist Sri Lanka to eradicate this threat, as otherwise, it may only be a matter of time, before this too becomes a new tool in the armoury of terrorists. Today, combating terrorism cannot be considered the sole responsibility of single governments or of single sets of soldiers who fight at the front at the risk of their lives. We must all get involved in an international effort if we are to defeat this menace. In these efforts, financial institutions and all other corporate entities, especially, NGO’s must also actively help prevent the funding and the flow of goods and services to terrorist organizations. We must all be wise to the type of trade we are engaged in, and be mindful of the impact it can have in facilitating terrorist activity. It therefore becomes imperative that any loopholes in banking which can be identified as facilitating the financing of terrorism and strict adherence to regulations to prevent such financing, receive the immediate attention of the regulatory institutions. The aftermath of natural disasters also often provide happy hunting grounds for money launderers and terrorists. Sri Lanka’s experience post-tsunami is ample testimony to this reality. Organisations and individuals emerged from nowhere after the Tsunami, with absolutely no track record of humanitarian work, to descend on us in the guise of humanitarian relief.