samchain/econo-pairs-v1 huggingface dataset:
The core model has this property. 6 The core model includes relationships that describe the demand and supply side of the economy and a relationship that describes interest-rate setting. The interest rate is set on the basis of a long-term normal interest rate level in addition to information on inflation and output. Disturbances to the economy that influence developments in inflation, output or the exchange rate also trigger interest rate changes. Interest rate changes in turn affect inflation, output and the exchange rate in such a way that these variables stabilise over time around their equilibrium values. The model thus also embodies assumptions concerning long-term developments. In the literature, an interest rate path determined in this way is often referred to as an endogenous interest rate path. This means that the interest rate is simultaneously determined within the model with other variables such as inflation, output and the exchange rate – the interest rate is not taken as a given outside the model. Economists with experience of other Norwegian macromodels may perhaps argue that the model I have just described seems too small to describe a complicated reality. The strength of such a small model is primarily that it isolates the mechanisms we are particularly interested in. At the same time, we also want to focus on a larger set of variables. In addition to the core model itself, the Bank therefore also uses a number of smaller additional models in its forecasting.

Reference is made in particular to Archer, D. (2005): “Central-bank communication and the publication of interest rate projections”, Faust, J. and E. Leeper (2005): “Forecasts and inflation reports: An evaluation”, Svensson, L.E.O. (2005): ”Further Developments of Inflation Targeting" and Woodford, M. (2005): “Central-Bank Communication and Policy Effectiveness". 3  This is further discussed by Woodford, M. (2005): “Central-Bank Communication and Policy Effectiveness", see footnote 2. BIS Review 6/2006  3  If the Bank’s interest rate forecast is different from market expectations, then this is useful information, not only for market participants, but also for the central bank. This may indicate that the central bank and market participants have a differing perception of future economic developments. It may also reflect differing views concerning the trade-offs in monetary policy. Market expectations, as reflected in forward rates, will be a way of cross-checking the Bank’s interest rate forecast. If Norges Bank’s interest rate forecast deviates from market expectations, the Bank should be able to explain this satisfactorily in order to influence interest rates in the money market. In Inflation Report 3/05, there were only minor differences between Norges Bank’s interest rate path and calculated forward rates up to 2007. Forward rates indicated that interest rates would then level off, while our forecast indicated a continued gradual rise up towards a more normal level. After the publication of the Report and up to end-January, market expectations have fallen. This shows that the interest rate path envisaged by the Bank and the path expected by the market can differ.
Chart 5: Population ageing is expected to continue Age distribution in the adult (16+) UK population (a)  (a) Dashed line and hashed bars are calculated using the ONS 2020-based interim national population projections: year ending June 2022 estimated international migration variant. Sources: ONS and Bank calculations. Chart 5 shows the age distribution for the United Kingdom. The share of the adult population aged 20-59 has fallen below 65% in the past decade, and it is set to decline further in the coming years. This population ageing has been driven by a decline in birth rates relative to the high levels seen in the years that followed the Second World War – as well as by the happier news that people now live for longer. As people accumulate savings over their working life to fund their retirement, wealth in the economy increases as the age distribution shifts towards older cohorts (indicated in this chart by bars in different colours). So ageing households have sought to lend more at a time when less productive firms have sought to borrow less. The only way to establish an equilibrium between the supply and demand in the market for investable funds – that is, to incentivise firms to invest this  Bank of England  Page 9  additional wealth into productive capital – has been for the price of those funds, the real interest rate, to fall. The trend equilibrium rate, R*, is like a long-term anchor for monetary policy.

Bank of England  Page 1  Supply matters − speech by Andrew Bailey Given at London School of Economics 27 March 2023  Bank of England  Page 2  Speech It is a great pleasure to be at the London School of Economics. Introduction The past few years have been a time of macroeconomic upheaval. A series of significant economic events have deeply affected the UK economy. This includes the change in our trading relationship with the European Union, the Covid pandemic with shutdowns of some sectors of the economy and supply chain bottlenecks in others, and the rise in energy prices caused by Russia’s brutal war on Ukraine and its people. These shocks have affected the UK economy in different ways. But they have all eroded the terms on which we trade with the outside world. This has made us poorer as a country; manifesting itself in a rise in the prices we have to pay for the things we buy as consumers. UK Consumer price inflation is currently at 10.4%. This is much too high, and we need to, and will, bring it back down to the 2% target. That is why last Thursday the Monetary Policy Committee increased Bank Rate at the eleventh meeting in a row, to 4.25%. We have increased Bank Rate by more than 4 percentage points since December 2021. These increases are being felt by households and businesses across the country.
The Riksbank also examines access to the payment services we use when we pay at a distance, for instance, our household bills.2 In Sweden we mainly use various credit transfer and direct debit products for paying bills. The survey showed that almost 90% had access to online banking services and 23% had access to credit transfer using paper forms. Only 3% said they did not have access to any of these services. If we add direct debit, only 1 per cent lacked access to a payment service for paying at a distance. These payment services were also used to a large degree. Broad access to innovative payment services Sweden is often said to be a technology-friendly country and this is reflected in the fact that so many have access to online banking. Now, online banking services have been available for nearly 20 years, while mobile payment services are much newer. It is therefore remarkable that almost one quarter of the respondents said they had access to some form of mobile payment service.3 If we broaden the perspective somewhat and include nontraditional payment services such as payments via a third-party provider and virtual currencies such as Bitcoin, then 40% have access to one of these services.4 A good 23% of respondents said they had paid with one of these alternative methods in the past month. Another example is that some banks reported as early as last summer that they had more log-ins via mobile banking services than via traditional online banking services.

It is not that I intend to question the concept of risk-weighted requirements in any way. Rather, it is my wish to possibly strengthen these requirements by introducing supporting measures. For example, compared with risk-weighted requirements, volume limits or the debt-equity ratio have the advantage that such key figures are basically very transparent and are not based on complex models. Moreover, they calculate the only element that is relevant in a crisis, and that is the size of the buffer that a bank needs to absorb losses. Third, it is a striking fact that, to date, hedge funds have not been a focus of the current crisis. To a considerable extent, this is attributable to a much improved management of counterparty risk in recent years. It is my view that banks should strengthen their risk management as regards their own refinancing decisions and risk allocation and not just with respect to external customers such as hedge funds. The kind of internal subsidising of refinancing costs for individual business areas observed in some cases creates false incentives. In future, the refinancing costs that a bank charges its internal risk centres should constitute an integral element of its risk management approach. To sum up, I would like to state that it is certainly true that the current situation in the credit markets is very serious. At the same time, I want to stress that, fundamentally, the earnings capacity of our international banks is high, thanks to their diversified business model, and this increases their resilience.
In the terms of the new Act the Monetary Policy Committee - apart from its public accountability through the Inflation Report and the minutes of its meetings - is accountable for the adequacy of its procedure to the Non-Executive Members on the Bank of England’s Board of Directors, who in turn report to Parliament through the medium of the Bank’s Annual Report. We are all accountable to Parliament in the sense that we may be - and regularly are - summoned to appear before the relevant Select Committees of both Upper and Lower Houses. And we are accountable to the Chancellor in that the Chairman of the MPC is required to write him an open letter if the rate of inflation diverges by more than one percent either side of the 2½% target explaining why and what steps we propose to take to bring inflation back within that range and over what time period. Finally, the Treasury has the power to give the Bank directions in respect of monetary policy if they are satisfied that the directions are required in the public interest and by extreme economic circumstances. Again, some observers have suggested that these elaborate accountability provisions are onerous and constrain the Bank’s independence. I take the contrary view, that they are essential to the legitimacy of the arrangements as a whole and so actually reinforce our independence - provided of course we are able to provide convincing explanations of our conduct!

But it was carried much further by Chancellor Gordon Brown, as literally the new Labour Government’s first act of policy - just four days after coming into office in 1997 - when he announced that the Bank would henceforth be independently responsible for the operation of monetary policy. This commitment was subsequently embodied in a new Bank of England Act that came into effect in 1998. The key characteristics of the new legislation were clarity of definition of the Bank’s responsibilities, and transparency and elaborate provision for public accountability for the manner in which those responsibilities are carried out. In relation to monetary policy in particular the new Act defines our responsibility as “to maintain price stability and, subject to that, to support the economic policy of the Government including its objectives for growth and employment”. It is the Chancellor who defines what, more precisely, is to be understood by “price stability” which he has done in the form of a symmetrical 2½% target for a particular statistical measure of retail prices. So we have “instrument” rather than “goal” independence. It is sometimes suggested that this is a second best arrangement. In our national context at least I disagree with that view.
Will Portugal need more help and will it receive it? The country was set back by the political uncertainty in the summer. This uncertainty has now been overcome and the country can and should take up from where it stood in the spring of this year, when it was able to successfully issue a long-term bond. Market confidence could be won back through a full implementation of the programme. That is why it is essential to keep to the existing programme and all its objectives. The debate on a second package is heard in Cyprus too. Not least because the collapse of the economy was worse than forecast. When can we expect “Cyprus II”? This question never ceases to amaze me. The Cyprus programme has not even been operating for six months and it has a duration of three years. I fail to understand why the question of a supplementary programme is already being raised. Cyprus must now implement the programme. There has been one review so far and that was successfully completed. The issue now is to continue the programme – nothing more. Not much has been heard about Slovenia recently. Will that country seek a rescue package if the ECB’s asset quality review exposes all the trouble in the banking sector? 2  BIS central bankers’ speeches  Slovenia is now conducting a separate stress test for the country’s ten major banks. The results will be available in late November or early December.

Our forward guidance comprises two elements: it aims to further clarify our views regarding the economic situation and the manner in which we intend to react to it. It is important to note that the United States and the euro area are at completely different stages of the economic cycle. Here in the euro area economy, an imminent change in the direction of monetary policy would certainly come far too early. But how realistic is decoupling from the United States? The markets, at any rate, don’t seem to have all that much faith in that prospect, if you look at the rising money market rates. I think it’s a little early to be judging that. Overall, we believe that we’ve been successful in reducing the volatility of rates. We’ve been moderately successful as regards the actual level of interest rates. Rates have risen on account of positive economic data. It remains to be seen how the situation will develop in the likely presence of further cautiously positive data. And if things do not go according to plan, will the ECB reduce its key interest rates again or conduct new LTROs? We will continue to monitor the situation. We haven’t said any more than that. Sometimes you have to keep calm, rather than coming up with something new every month. Why is the ECB not publishing inflation projections beyond 2014?
It is an essential competency for individuals to navigate the increasingly complex financial landscape. At a global level, in recent years, we have seen a significant increase in the complexity of financial products and services, making it more difficult for individuals to make informed decisions that safeguard their financial well-being. What is alarming is the fact that the level of financial literacy globally is very low. International research finds that, only 1 in 3 adults worldwide are financially literate. This is worrisome not only because of the negative repercussions at the individual level, but also, because of the potential impact it may have at the broader level of a country's economy, including financial resilience and stability. For instance, there are studies indicating that poor financial decision-making, including excessive risk-taking by individuals, preceded financial crises in the past. This phenomenon appears to be accentuated when the preceding prosperous periods have a longer duration than usual, as described by Minsky's Financial Instability Hypothesis. Examples include the Global Financial crisis, where  1/5  BIS - Central bankers' speeches  many people became over-indebted to purchase real estate, as prices appeared, at least to them, to be ever-increasing. When the bubble eventually burst, they were unable to cope with their financial obligations creating a domino of bankruptcies thus, raising further financial stability risks. The negative repercussions of financial illiteracy and of other shortcomings of financial markets, especially on financial stability, can be addressed by enhancing the efficiency of financial regulation.

In addition to the experts we physically have with us, we are also delighted to have through a digital connection, the pioneer academic and distinguished researcher in the field of financial literacy, Professor Annamaria Lusardi, a Professor of Economics and Accountancy at the George Washington University, in Washington DC. I have had the pleasure of meeting bilaterally with Professor Lusardi in Washington DC on different occasions while I'm there for the annual IMF meetings. Needless to say that her academic credentials, but also her passion and perseverance in promoting financial literacy across the globe, have left a great impression on me. I am thankful that she has accepted my invitation to be our key-note speaker in this event. 4/5  BIS - Central bankers' speeches  Without further ado, I wish you all very productive and fruitful discussions during the Conference. Thank you. 5/5  BIS - Central bankers' speeches
Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments, or banks which pose greater risks to taxpayers and the economy in the event of failure should face higher capital requirements, or we must develop resolution powers such that large and complex financial institutions can be wound down in an orderly manner. Or, perhaps, an element of all three. Privately owned and managed institutions that are too big to fail sit oddly with a market economy. One important practical step would be to require any regulated bank itself to produce a plan for an orderly wind down of its activities. That would provide the information to the authorities the absence of which made past decisions about the future of institutions difficult. Making a will should be as much a part of good housekeeping for banks as it is for the rest of us. And it would be sensible for the various authorities to work across national boundaries to identify detailed plans for how each large cross-border financial institution could be wound down. BIS Review 76/2009  3  The Bank of England has a new statutory responsibility for financial stability. Bank Rate is the instrument we deploy to achieve monetary stability, and should be used exclusively for that purpose. To achieve financial stability the powers of the Bank are limited to those of voice and the new resolution powers.

And the required adjustment still has a long way to run – few of the largest banks in the United Kingdom managed to reduce their leverage ratios through 2008, which remain at historically high levels. Third, interconnections between institutions create potential fragilities across the system, as we saw last September. Fourth, the risks associated with large-scale proprietary trading are probably harder to control in limited liability companies. So we need instruments to prevent the size, leverage, fragility and risk of the financial system from becoming too great. The resulting “macro-prudential” toolkit will contain a number of instruments to reduce risk, both across the system and over time. It must not be put together in a hurry. And I share the concerns of many of you that we are a long way from identifying precise regulatory interventions that would improve the functioning of markets. As far as individual banks are concerned, we face some uncomfortable choices about the structure and regulation of our banking sector. If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give.
That is, the individuals who have the greatest impact on a firm’s strategic direction should have the strongest incentives to maximize the firm’s long-term enterprise value. If we have this deferred compensation structure in place for financial firms, then we can leverage it to strengthen the incentives for senior leaders to design and implement the necessary changes to improve their firm’s culture. That is, this deferred debt compensation can be used as a “performance bond.” Performance bonds are used in many situations such as security deposits on rental properties. Today, when a financial firm is assessed a large fine it is paid by the shareholders of the firm. Although senior management may own equity in the firm, their combined ownership share is likely small, and so management bears only a small fraction of the fine. Now, having shareholders pay may create market discipline in that  6  Given the length of the vesting of this component, firms might want to allow this vesting to continue even if an individual leaves the firm. That is, one may not want an individual’s accumulated deferred debt compensation to act as a friction to job mobility. However, even if an individual leaves the firm, the debt compensation would still be at risk of forfeiture. BIS central bankers’ speeches  5  they have an incentive to better monitor the firm’s actions.

The precise formulation of an amendment would need to be worked out, but the application should be sufficiently broad so that it also covers asset managers, hedge funds and private equity funds. Like the registry, a broad and permanent industry prohibition changes the time horizon for the perceived costs of misconduct – from a one-time fine, or perhaps a few years in prison, to a lifetime prohibition from earning a living in finance, regardless of the type of employer involved. I would welcome the industry’s participation in developing this concept. Conclusion To ensure the behavior that is required for a safe, sound and trusted financial system, we must also be effective in our role as regulators and supervisors. As part of this, we as supervisors must continually work to improve our own cultures to ensure that we can successively carry out our responsibilities. But it also requires good culture at the institutions that we supervise. Supervisors simply do not have sufficient “boots on the ground” to ferret out all forms of bad behavior within a giant, global, financial institution. Moreover, regardless what supervisors want to do, a good culture cannot simply be mandated by regulation or imposed by supervision. In conclusion, if those of you here today as stewards of these large financial institutions do not do your part in pushing forcefully for change across the industry, then bad behavior will undoubtedly persist. If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively.