samchain/econo-pairs-v1 huggingface dataset:
Holding firm during the financial crisis has paid off. The economic recovery may have taken some time in many areas, but the global economy is now back in fairly good shape. But it is at this very moment, when a lot of countries are able to post respectable economic growth, that protectionism appears to be rearing its head again. Trade disputes between several countries are jeopardising the global upturn. Burgeoning protectionism also entails considerable challenges for central banks – and thus for the Swiss National Bank (SNB), too – as it brings with it the threat of negative consequences for monetary policy. Free trade as a scapegoat Before I come to the actual subject of my speech, namely the relationship between protectionism and monetary policy, I would like, if I may, to take a step back for a moment and look at where the calls for protectionism stem from. Numerous academic and empirical studies 1 have demonstrated that the free exchange of goods and services improves people’s standard of living.

In the past few decades, international estimates of the neutral real interest rate have fallen and are now at 1 percent or below in many countries (see Rachel et al (2015), Laubach et al (2015), Hamilton et al (2015), Constâncio (2016) and Zhu (2016)). Obviously, international interest rate developments affect Norwegian interest rate setting, particularly through the exchange rate channel. And Norges Bank’s estimate of the neutral interest rate has been gradually revised down in pace with international developments. The Bank’s forecasts are now based on the assumption that a neutral nominal money market rate in Norway will be between 2½ percent and 3½ percent in the coming years. The associated neutral nominal key policy rate is somewhat lower.1 The low level of the neutral interest rate raises a number of issues. Today, I would like to focus on two aspects that have been given weight in recent years in Norges Bank’s assessment of a robust interest rate path. The first is that the effect of changes in the policy rate tends to be more uncertain when the rate is very low. The second relates to the challenge persistently low interest rates pose to financial stability. GREATER UNCERTAINTY ABOUT THE EFFECT OF THE POLICY RATE Monetary policy decisions are made under uncertainty. Central banks operate in an environment of uncertainty regarding the current situation, the driving forces in the economy and the functioning of the economy. Much of this uncertainty is associated with conditions beyond the influence of monetary policy.
Being gradual is less important than being orderly As William Brainard famously argued more than 50 years ago, gradualism is appropriate in a situation where we face large uncertainty. viii However, the Brainard principle was formulated before monetary economics understood the importance of inflation expectations. Research at Banque de France shows that a central bank facing instrument uncertainty is bound to be overly cautious if it fails to appreciate that being gradual runs the risk of moving inflation expectations adversely. ix We can be gradual, but we should not be slow and delay normalization until higher inflation expectations force us into aggressive interest-rate hikes. What remains essential however is to be orderly, in order to avoid undue market volatility and ultimately economic volatility. Like a gradual normalization, an  Page 6 sur 8 orderly one has a time dimension, as we should avoid putting risks on financial stability through unnecessarily brutal interest rate changes. x But it also has a cross-country dimension, as it also implies avoiding within the euro area unwarranted country-specific spikes in borrowing costs that only emerge from the echo chamber of financial markets. In this respect, our new Transmission Protection Instrument (TPI) is a very powerful tool for an orderly path forward. II.C. How to deal with surprises: a reaction function So far, so good about being orderly or predictable… but uncertainty means surprises, and we have had to deal with many bad ones on inflation figures.

The core principles of the science’s consensus remain valid today. Page 3 sur 8 In particular the two first principles—central bank independence and the primacy of price stability—remain essential for the credibility of the central bank. We are benefiting from it today through the—so far—relatively firm anchoring of longterm inflation expectations despite the surge in current inflation. This being said, we should acknowledge that new questions have arisen with the unexpected return of high inflation. Let me highlight three. A first question is the slope of the Phillips curve. To the enduring debate of whether it had flattened since the 1970s we must now add the question of whether it could be steepening again in the current inflationary environment. The question is central to assess how to quell inflation without engineering a harder than necessary landing of economic activity. Second, we still have to understand better how inflation expectations influence actual inflation. In recent years, we have made considerable progress –including at the Banque de France—in measuring the expectations of firms and households, which are the ones that matter for price-setting and spending decisions. iv But there is still relatively little empirical work on how their inflation expectations map into their actual pricing and spending decisions. v What the extent of pass-through from inflation expectations to inflation is, or whether past inflation plays a role beyond inflation expectations remain open questions. vi  Page 4 sur 8 Third, what about forward guidance? It was a decisive input of science, thanks to Eggertsson and Woodford.
Here a key argument was that I find it crucial to be very clear about the guiding role of the inflation target when designing monetary policy. If such clarity is lacking, there is a risk of a selfreinforcing process emerging leading to average inflation “getting stuck” at too low a level. Such a development would be problematic, not least as it would lead to the policy rate having to be negative for longer periods. I then discussed the current framework with an inflation target and a floating exchange rate as a point of principle. Here my main purpose was to remind people of the positive aspects of this framework, as my experience is that the debate over recent years has been biased towards emphasising the disadvantages. I discussed and responded to two arguments that have occurred in the debate: that the inflation target is no longer relevant as a benchmark for wage formation and that the krona’s development in recent years shows that the costs of having a floating exchange rate have now become too great. The framework with an inflation target and a floating exchange rate, which we launched in 1993, is not perfect in all situations and for all events. But unfortunately, no perfect system exists and the interesting question is whether there is a better alternative. This reminds me of Winston Churchill’s evaluation of democracy as a form of government:  11 Currency Rate Act (1998:1404), Section 2.

Development of the krona has been weak for a few years and there is no doubt that one reason for this is indeed the exchange-rate channel and the expansionary policy to maintain confidence in the inflation target. It would be strange if this were not the case as this is partly how monetary policy works. But, and this is an important ‘but’, it is far from the whole picture. It is obvious that another part of the explanation is that currencies in small, open economies tend to depreciate when there is turbulence in the world. For example the Norwegian krone and the New Zealand dollar have experienced a very similar development as the Swedish krona in recent years, despite the policy rate in Norway and New Zealand being 1.50 and 1 per cent respectively, that is to say significantly higher than in Sweden (Figure 3). This is a very important observation to consider when criticism is being levelled at the Swedish inflation-targeting regime. It gives some perspective to, among other aspects, the “krona collapse” that is often highlighted in the debate. 12 [17]  But if one holds the view that the movements in the krona are not acceptable, one can of course argue for a return to a fixed exchange rate. This would, however, be a political decision and nothing the Riksbank can decide on. Under the Currency Rate Act, the government takes decisions on the exchange-rate system that is to be applied.
1 1.1  The Spanish economy: recent developments and outlook International environment  As I stated in early October before the Economic Affairs and Digital Transformation Committee in this House, the COVID-19 pandemic has prompted unprecedented disruption to economic and social dynamics both in Spain and globally. It is an event which, given its exceptional rarity and marked impact, we economists colloquially dub a “black swan”. In the first half of 2020, the health crisis and the measures to contain it caused a deep recession worldwide, which peaked last spring. Since then, economic activity has embarked on a path of recovery which, however, has proven incomplete, uneven and fragile. It is incomplete or partial because, despite the rises observed in recent months, activity and employment are still clearly down on their pre-crisis levels in virtually all countries. Uneven, not only at the international level but, in particular, from the sectoral standpoint, as some sectors of activity involving a substantially high degree of social interaction continue to be appreciably more affected than the rest. And lastly fragile because, as we have seen in recent weeks, in the absence of an effective medical solution for the virus, the intensity of the current path of recovery, and indeed its continuation, are highly dependent on how the pandemic evolves and any fresh outbreaks. As a result, global economic developments in the coming quarters are subject to very high uncertainty.

To this effect, Europe-wide measures are crucial, even if they do not take the most appropriate form for optimal efficiency, as would have been the case, for example, of a permanent macroeconomic stabilisation instrument depending on the common budget. That said, in the absence of such an instrument, the European recovery fund may fulfil this function in a reasonably adequate manner in the coming years. However, harnessing the maximum potential of these funds poses a huge challenge. The first difficulty lies in the need to develop the capacity to set in place a number of new high value-added projects that do not supplant those that would have been carried out had the European funds not been available. In addition, these projects require prompt execution, to permit a more robust economic recovery once the pandemic has been overcome. Indeed, this is the Government’s declared intention: to use these European funds as promptly as possible as a catalyst for structural transformation. Nevertheless, it is fair to acknowledge the huge challenge that the swift implementation of a potentially very large number of projects will entail for the existing structures. The projects executed under these programmes must be concentrated on areas such as digitalisation, the fight against climate change or improving human capital. Their effects on economic growth potential will depend, above all, on the projects to be executed being selected in accordance with a carefully designed structural reform plan.
François Villeroy de Galhau: Developments in Europe against the background of global uncertainties Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Paris Europlace International Financial Forum, New York City, 18 April 2016. *  *  *  In 2016, the world in general, and Europe in particular, is experiencing a period of uncertainty: uncertainties relating to our security, with the threat of terrorist attacks; political uncertainties, with the risk of a “Brexit” and the refugee crisis; as well as economic uncertainties, with lower economic growth in emerging economies, including China, and high market volatility at the beginning of the year. Nevertheless, recovery is underway in Europe. As you may know, a meeting of the ECB Governing Council will be held in two days, so I have to respect a silent period on monetary policy matters. But I can emphasize that, in response to weak inflation and heightened uncertainties, the Eurosystem, of which the Banque de France is a member, has been acting decisively. And European countries have been implementing structural reforms since the onset of the crisis. Those national efforts are crucial, but we need to go further with more coordination: coordination to direct savings towards projects and countries that need them; coordination of the reforms themselves at the European level.

Norway is recovering sooner than most countries, and Norges Bank was among the first central banks to raise its key policy rate. It did so twice in late 2009, up to 1.75%. As a global investor and an open market economy, my country shares the interests of most market participants, large and small. We have a common interest in a market-based international order, supporting a level playing field and sound economic governance. Like many other countries, we have benefitted greatly from economic and financial globalisation. It has delivered prosperity and growth without precedent. In the midst of the crisis, these gains must not be forgotten. The multilateralism of Bretton Woods At the end of the Second World War, 45 countries agreed to establish a new international financial and economic order with the Bretton Woods Institutions, the IMF and the World Bank, at its center. In his inaugural speech to the Bretton Woods Conference in 1944, US Treasury Secretary Henry Morgenthau noted the following: “We know that economic conflict must develop when nations endeavor separately to deal with economic ills which are international in scope. To deal with the problems of international exchange and of international investment is beyond the capacity of any one country, or of any two or three countries. These are multilateral problems, to be solved only by multilateral cooperation. They are fixed and permanent problems, not merely transitional considerations of the postwar reconstruction.
On the other hand, equity prices can go up as a result of real changes, eg due to achieved or expected productivity improvements. Such supply-side driven equity price increases signal a higher productivity potential and would - if anything - be a reason for an expansive but certainly not a restrictive monetary policy correction. This example illustrates the central banks’ scepticism against the suggested changes. From the Swiss vantage point, there is well-founded additional scepticism. Our stock market is dominated by companies whose activities are concentrated abroad and thus have little direct connection with our economy. It is possible that new insights will lead to different conclusions. For the time being, however, it seems advisable to stay with the generally accepted “consensus view”, but to do that job as well as possible. Conclusion I am about to come to the end of my reflections, fully aware that my journey through a changing world is far from complete. I did not mention payment transactions, for example, even though this is an area undergoing various changes with potentially far-reaching consequences. In reflecting on change, however, we must not forget that the basic mandate of central banks remains unchanged: to secure stable monetary conditions for the economies they serve - both today and in the future. Literature: King, Mervin, Challenges for Monetary Policy: New and Old, Paper prepared for the Symposium sponsored by the Federal Reserve Bank of Kansas City at Jackson Hole, Wyoming, 27 August 1999. (King 1999).

They characterise Magna Carta as a pragmatic political document that was a product of its time, including the difficult economic circumstances that then prevailed. As usual with historical arguments, the answer lies somewhere in between. In what follows, I will spend a few moments on the pragmatic element not only because it plays to my comparative advantage as an economist but also because it ultimately underscores the foundational character of the document itself. The enduring legacy of Magna Carta is how its strictures on unconstrained power are reflected in our systems of political and economic governance. I will conclude that both the constitutional and pragmatic perspectives are relevant to modern central banking and the current conduct of monetary policy. Specifically, the costs of inflation were among the key economic catalysts of Magna Carta, and its core constitutional legacy – namely the importance of delegated authority, with clear lines of public accountability – is at the heart of the Bank of England’s institutional arrangements. In the spirit of Magna Carta, the Bank of England has been given a great responsibility: to deliver monetary stability for the good of the people of the United Kingdom. Our goal, the 2 per cent inflation target, is set by the Government, and we operate under constrained discretion in its pursuit. 1. The economic and political context  Where did Magna Carta come from?
But for those that fall within the mandate of the Basel Committee, we believe that the ideas produced by Basel Committee thinking – translated into the Basel III reforms, and subsequently endorsed by the G20 and Financial Stability Board – provide a substantial foundation on which the banking system can be rebuilt to be much more robust and resilient in the future. Basel III capital requirements are probably well known to all of you, so I do not propose to say much more about them today. What I would instead like to focus on is our thinking in relation to liquidity, and particularly the LCR. As an idea, it is simple: a bank should have enough liquid assets to survive a 30-day period of stress. And perhaps to some, it might seem underwhelming. If you tell your spouse that we have implemented a reform that requires banks to have enough cash to last 30 days, more than likely you will get the same response I did when I tried to explain it to my wife: “what do you mean, only 30 days?” Yet this idea has been one of the most fundamental reforms of the crisis. It also is a classic example of an idea that had been toyed with for a long time, but took a crisis to bring to fruition. A study of Basel Committee history shows liquidity to have been on the agenda almost for the entire existence of the Committee, but we have never come close to an international standard.

•  As we have discussed in our publications, such as our Monetary Policy Report, the current events will have dramatic effects on financial and economic activity. A contraction in the economy and a rise in unemployment are expected. •  Financial institutions and the banking sector are exposed to the shocks in liquidity and credit risk. At the same time, the banking sector is an important pillar channeling liquidity and credit support to firms and households. •  The CBC has been providing liquidity facilities to the markets since the Covid-19 first hit our country. •  Nevertheless, we have also stated that although this crisis will last longer than we originally expected, it is a temporary crisis. Moreover, the banking sector is in good shape and solvent to weather the storm. •  When crises hit our countries, systems like CLS acquire one of their most important roles. It is during these times that counterparty, and credit risks increase and a system that allows payments without any settlement risk is of extreme value for financial markets and the economy. Page 3 of 4  Central Bank of Chile July 2020  •  This crisis has created an important challenge to policymakers everywhere. In many countries, we hear that an extraordinary crisis should generate extraordinary responses. In Chile, we have indeed produced such extraordinary responses, both in size and shape.
The wage growth rate influences inflation, unemployment and interest rates In the Riksbank’s most recent forecast, we estimate that hourly wages will increase by about 3.5 per cent per year in 2012 and 2013, and that this corresponds with underlying CPIF inflation of close to 2 per cent towards the end of the forecast period. At the same time, unemployment will only fall to just above 6 per cent at the end of the forecast period. The National Institute of Economic Research’s most recent report of wage formation, from May of this year, presents calculations of the impact of the size of wage increases on inflation and employment. These indicate that wage increases would have to be limited to about 3 per cent per year in 2012–2014 for unemployment to be sustainably decreased to 5 per cent, in accordance with the government’s ambitions. I assume that we will be hearing more about this later today. The Riksbank has made similar calculations that also indicate a connection between wage trends, inflation and unemployment. The basic mechanism in these calculations is that higher wage increases lead to increased costs for companies. If companies wish to retain profitability, they have to choose between raising their prices or decreasing their personnel costs by reducing employee numbers. The most likely scenario is that a combination of these measures will be adopted. Inflation will increase and employment will decrease.

Demanding capital thresholds have been set for this component of the exhaustive analysis. Specifically, the reference value has been set at 8% in respect of top-quality capital (CET1) under the definition of the Capital Requirements Directive and Regulation that incorporate the Basel III Accord into European legislation. This 8% threshold is equivalent to adding, to the regulatory minimum of 4.5%, the capital conservation buffer of 2.5% and an additional  2  BIS central bankers’ speeches  1% to reflect the systemic importance of the significant institutions that will be overseen by the single supervisory mechanism. Finally, strict governance arrangements have been set for conducting the analysis, so as to provide for the consistency of the work performed by the national authorities in each jurisdiction. In this way, although the exercise will be carried out in a decentralised fashion, a significant central structure – with the involvement of external advisers – has been set up to ensure the maximum possible degree of uniformity. Evidently, it is a complex exercise posing numerous organisational challenges, and which must be performed with the utmost rigour to meet the objectives set and, above all, to ensure the comparability of the results obtained for each bank in each jurisdiction.