samchain/econo-pairs-v1 huggingface dataset:
But they all also expected that this effect would be temporary and that inflation in 2023 would again be below the target on average (Figure 1).3 The forecasters judged that these developments would be compatible  *  I would like to thank Mikael Apel for his work on this speech, Charlotta Edler, Bul Ekici, Jesper Hansson, AnnLeena Mikiver and Marianne Sterner for valuable comments and Elizabeth Nilsson for translation. The views expressed in this speech are my own and are not necessarily shared by the other members of the Executive Board. 1 Jansson (2021). 2 The thoughts I raised in that speech seem to have become topical. In September this year, an ESO report on the division of roles between fiscal and monetary policy was published; see Calmfors, Hassler and Seim (2022). 3 The spread in the inflation forecasts for 2023 was relatively large, from Nordea’s 1.2 per cent to Swedbank’s 1.9 per cent. As recently as December 2021, inflation excluding energy prices was 1.7 per cent, which was a decline of 0.2 percentage points compared with the outcome in November 2021. The first signs in actual price developments that inflation excluding energy prices was on the way up came in the January outcome, which was 2,5 per  1 [15]  with a policy rate maintained at zero per cent in 2022. And only a few expected modest increases in 2023.

It is worth pointing out here, which I often and willingly do, that if one thinks that it does not matter that inflation on average is below 2 per cent and at the same time dislikes a zero or negative policy rate – which seems to be a fairly common combination of views – then these are two arguments that contradict one another. If average inflation is below 2 per cent, then a zero or negative interest rate will inevitably become even more common. As inflation today is far too high, this discussion has for the moment disappeared from the agenda. However, as I said earlier, it is not impossible that we might return to a situation in a couple of years where it will reappear. A good and a bad scenario The present economic policy frameworks thus provide favourable conditions for returning to the inflation target within a reasonable time perspective. And there is no doubt that the Riksbank has the tools required to achieve this. When it comes to raising the policy rate, there is no upper bound in the same way as there is a lower bound. Of course, interest rate hikes are associated with costs too, but the difficulties of bringing inflation back to the target are not about binding restrictions but about how quickly this can reasonably be achieved. Even if considerable strains might be imposed on the real economy during the process, there is no doubt that we will do what is necessary to meet the inflation target.
BIS Review 60/2006  1  Chart 1: World exports of goods and services, 1960-2002  USD billion 7 000  6 426.9  6 414.1  6 000 5 000 4 000  3 500.3  3 000 2 031.2  2 000  1 610.6  1 511.9 824.7  1 000 130.1 0  385.4  316.4 0  0  1960  1970  1980  1990  Exports of goods  2000  2002  Exports of services  Source: UNCTAD  Chart 2: Foreign Direct Investment USD billion 1 600  1393 1 400  1 201 1 200 1 000  824 711  800  651 647  600 400  209 243  200  13 14  55  54  0 1970  1980  1990  Inflows  2000  2001  2002  Outflows  Source: UNCTAD  2  BIS Review 60/2006  Table 1: Changes in national legal regulations regarding FDI, 1992-2002 1992  1995  1999  2002  Number of countries which introduced legal 43 changes regarding investments  64  63  70  Number of legal changes, of which:  79  112  140  248  - changes favouring FDI  79  106  131  235  - changes more restrictive for FDI  0  6  9  12  Source: UNCTAD  Along with an increase in the value of international trade, enterprises have become active participants of the FX market.

21  Feldstein M., Horioka C. “Domestic Savings and International Capital Flows”, Economic Journal, June 1980. 10  BIS Review 60/2006  work of 1980 estimated the correlation between the national savings rate and the investment rate in the years 1960-1974 at 0.89. This correlation for the years 1990-1997 was estimated at 0.60, and having included South Korea – at 0.76. Despite a pronounced fall, the correlation between the national savings and investment remained high. 22 his constituted a peculiar puzzle, as in the global world of finance there were no good reasons for which investments were to be financed with residents’ savings rather than with loans drawn on the global financial market. As in the case of the “Lucas puzzle”, numerous works have been written to explain this phenomenon. In the most recent work by Martin Feldstein regarding this subject, 23 the newly estimated correlation rate gradually decreased over subsequent decades to reach a mere 0.19 in the decade ending in 2002. The decreases regard mostly smaller countries, but the estimates for large countries also show that the correlation rate fell from 0.92 down to 0.59. Therefore, it seems that over 10 recent years the process of globalization of financial markets exhibited a pronounced deepening. One may wonder why the recent years have witnessed acceleration and deepening of the globalization process, given that some phenomena that are universally deemed the reasons behind globalization, started a few decades ago.
‘Cardus on Cricket: A Selection from the Cricket Writing of Sir Neville Cardus’ Souvenir Press  1  2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Fundamentally, this is due to the fact that Libor is trying to measure a market – the market for unsecured wholesale term lending to banks – that is no longer sufficiently active. The low levels of underlying activity make it fragile and more susceptible to liquidity and amplification effects in financial markets. In the three-month sterling Libor rate, which is commonly referenced in many loan agreements in the UK, the proportion of ‘transaction based’ submissions only rose above 10% of relevant data supporting that rate once in the year up to March.2 In the week of 16 March this year, as central bank policy rates were reduced to historically low levels, making cheaper funding available to banks, ‘transaction based’ submissions in three-month sterling Libor fell to zero.3 Over half of the 35 published Libor rates across all currencies contained no transaction based submissions at all during that same week. At the same time Libor rates, and therefore costs for borrowers, spiked upwards based on firms’ expert judgement. By contrast, the value of transactions underpinning SONIA, the chosen alternative in sterling markets, increased from an average of around £ billion per day to over £ billion in April. Now let me emphasise, as I have said before, we have no reason to believe there is misconduct related to the Libor rates today.

Level 3 is ‘expert judgement’ — where a panel bank has insufficient Level 1 or 2 transactions, it estimates the rate at which it could fund itself in the unsecured wholesale funding market, based on an approved procedure. Further details are available at: www.theice.com/publicdocs/ICE_LIBOR_Methodology.pdf 3 Interim Financial Stability Report, May 2020 – Box 1 The continued importance of the transition away from Libor, https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2020/may-2020.pdf 2  3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  benchmark. Libor rates – and hence costs for borrowers – rose as central bank policy rates fell to support the economy.4  It is logical that credit spreads on bank debt (a measure of perceived risks in lending to banks) should increase during periods of stress. It is also unsurprising for banks to be attracted to the idea of being able to pass that cost directly onto their customers, but it does raise an important question:  Given this cost is passed directly onto borrowers through the interest rates they pay, how well does that rate actually reflect the cost of bank funding? There have been significant changes to the way banks fund themselves since the global financial crisis, making them more robust. Regulatory changes have significantly reduced dependence on the fickle shortterm unsecured markets that Libor measures.5 We have seen the benefits of those reforms through the first half of this year as banks have continued to lend and markets have remained open.
I am quite certain that most observers deem that this would also provide better growth over the long term. How will regulation affect monetary policy’s transmission mechanism? Another consequence of the regulation agenda is that what is usually known as monetary policy’s transmission mechanism may look slightly different in the future. More specifically, the connection between the central banks’ policy rates and the interest rates affecting households and companies may change. A stable transmission mechanism is usually an underlying assumption in economic models. This is probably a fairly good approximation under normal circumstances, but, during the crisis, it became necessary to reassess this assumption. The impact of monetary policy was affected by a decline in willingness to take risks and the impaired functioning of the interbank markets (Figure 6). 8  BIS Review 68/2010  Figure 6 Difference between interbank rates and government bond rates (TED spread) Basis points 500  500 Sweden Euro area USA United Kingdom  450 400  450 400  350  350  300  300  250  250  200  200  150  150  100  100  50  50  0  0 Jan- Apr07 07  Jul07  Oct07  Jan- Apr08 08  Jul08  Oct08  Jan- Apr09 09  Jul09  Oct- Jan- Apr09 10 10  Note. The difference is calculated as the difference between three-month interbank rate and the rate on a three-month treasury bill.

However, there is also reason to consider how the regulations introduced could affect the impact of monetary policy. These regulations usually entail an increased cost for the banks which, to a certain extent, is passed along to customers in the form of an increased interest rate margin. This could be seen as a sort of “regulation premium”. This premium can also be seen as the price to be  BIS Review 68/2010  9  paid by households and companies for more stable real economic development as represented by the broken curve in Figure 5. This concept can be illustrated with the equation for the lending rate by adding a variable ( z ) designating regulations affecting the interest rate margin:  itlending  it   t ( z ) . I would like to emphasise that this equation is, of course, a simplification. However, as my focus today is on the correlation of interest rates and regulations, this description will be facilitated by viewing regulations as a kind of “shadow interest rate”, even if they can also be analysed in terms of the supply of credit. If regulations become more stringent, the interest rate margin and thus the lending rate both increase. New regulations will not be introduced until we have emerged completely from the crisis, and they will be introduced successively. The end result will probably be a higher interest rate margin than was the case prior to the introduction of the regulations.
A simple example can be when companies’ costs suddenly increase, for various reasons. Companies then often increase their prices to compensate for the rise in costs, but they usually also reduce the resources they use in production. The result may then be that inflation exceeds the target, while economic growth slows down. If, in such a situation, monetary policy aims to quickly bring down inflation, capacity utilisation in the economy may fall further. These problems can be alleviated if monetary policy aims to bring inflation back on target more gradually in such situations. In practice, of course, we must often deal with much more complicated situations than this type of textbook scenario. Take, for instance, the present situation. The high productivity growth we have experienced in recent years has led to a disruption – a positive one – in the supply side of the economy, while inflation has remained low. However, we have not yet experienced a clear conflict between the aims to attain the inflation target and to stabilise the real economy. The improved productivity has so far enabled a high growth rate without excessive strain on capacity utilisation in the economy. We have therefore seen scope to stimulate the economy by means of expansionary monetary policy. At the same time, the low interest rate has contributed to a rapid increase in house prices and to an expansion in credit.

For this reason, it is important that deviations from the target should not be allowed to become too prolonged. This is why the Riksbank has chosen to aim under normal circumstances to bring inflation back on target within two years. One can say that this is a restriction we have placed on ourselves to create flexibility in an orderly manner. At the same time, it is not appropriate to set restrictions for monetary policy that would be binding regardless of developments in the economy. There may – exceptionally – be situations where the consequences of bringing inflation back on target within two years may lead to unacceptable fluctuations in economic activity. It has sometimes been claimed that there is currently a risk that inflation could remain subdued over a long period of time, partly as a result of globalisation, and that this may mean that inflation is below target for longer than two years. We have made another assessment, as I mentioned earlier, but this type of situation is an example of when it might be  4  BIS Review 44/2006  appropriate to deviate from our normal target horizon. If we were to make the assessment that this type of situation had arisen, we would make it quite clear in advance. We also make clear how long we expect inflation to deviate from the target, and why we think this will happen, in connection with our monetary policy decisions. Conclusion Let me conclude with a brief summary of what I have just said.
During the past three decades, the  2  BIS Review 85/2006  Swiss franc has been an essential factor in the development of the Swiss economy. However, it has never been a reason for our exporters to sit back and relax. On the contrary, the Swiss franc has put pressure on them to become more efficient and to specialise in those product areas in which we have a real competitive edge. Consumers have also profited from the strong Swiss franc in that the prices of imported goods have fallen significantly. A currency that is accurately priced enables the economy to benefit from improvements in its terms of trade triggered by productivity increases. That is why Switzerland is a firm believer in flexible exchange rates. Another advantage of a flexible Swiss franc is that changes in the international monetary system have little bearing on our currency, which is largely determined by economic realities in Switzerland. Consequently, the launch of the euro in 1999 – probably the most important event on the monetary scene in recent years – did not lead to the disappearance or the destabilisation of the franc as feared by some. Though the euro – to all intents and purposes – is accepted as a means of payment in Switzerland, there are not more euros in circulation now than there were French francs, German marks or Italian liras prior to monetary integration.

Sometimes these biases are extreme, at other times subtle. Sometimes they are conscious, at other times unconscious. But all of our minds are biased. Looked at through an evolutionary lens, this is not as controversial as it may appear. Let me explain why. Humans are sentient, water-filled whoopee cushions moulded over millions of years of evolutionary experience. For the vast majority of that period, they operated in huntergatherer communities of less than 100 people. Evolutionary biologists believe that behaviours learned, and neurological pathways cleared, during that period may have had a lasting impact  1  Seuss (1953). BIS central bankers’ speeches  1  on our brains and bodies. 2 The neurological and physiological traces of our ancient past are still very much visible and audible today. The hunter-gatherer bands of primitive man occupied a hostile environment. Groups of that size were acutely vulnerable to events that could threaten their extinction. Chief among these existential threats was conflict and disease. And the most likely sources of conflict and disease were not found within communities but outside of them – from dangerous strangers, bearing ill-will or ill-ness. 3 Evolutionary biologists believe this existential risk from conflict and disease installed a deep-seated “fear of strangers”. It embedded stranger-danger. Strangers, for this purpose, could be anyone with characteristics different than those of the “ingroup”. In fragile hunter-gatherer communities, this mind-set made sense. It was a rational, risk-averse response to existential threat.
So, to conclude on the moral hazard topic, I would say that, in order to draw meaningful conclusions, it is important to distinguish between the very different possible types of financial crisis management measures available to central banks. When assessing and choosing among these different measures, it is necessary to take into account the implications for both the central bank and for its counterparties, including the future incentives of the latter, in order to achieve, overall, the most efficient allocation of resources. BIS Review 143/2007  7  Separation of liquidity management and the monetary policy stance Finally, a frequent focus of our communication during the turmoil has been the importance of distinguishing between interventions related to liquidity management and changes in monetary policy stance. It is very important for the public to understand that the implementation of technical measures related to liquidity management during the current turmoil has been completely separated from any considerations on the monetary policy stance. Contrary to the occasional public perception, these operations have had no effect on the overall liquidity supply to the banking sector. Overall, the amount of liquidity provided within the various maintenance periods since the start of the turmoil has remained unchanged. Instead, the liquidity provision has been to some extent simply brought forward in time within each period, thereby simply representing a shift in the time path of liquidity supply within the reserve maintenance period.

Since the outbreak of the financial tensions, this Group has solidly worked to gather and share information on developments in the euro area money market and has also provided us with useful feedback on the effect of the ECB’s money market operations. Statistical information. The ECB has also benefited from the wealth of harmonised area-wide financial, banking and monetary statistics that the Eurosystem has developed over the last decade as well as from the recently released quarterly integrated accounts. In addition, very useful information has been collected through surveys (notably, the Bank Lending Survey). Information exchanges with other central banks. During the current turmoil information has been extensively shared and discussed within the central banking community on a wide range of issues, from very technical and operational to more policy-relevant considerations. Especially at the onset of the tensions, the consultations among the relevant central banks were very intense and particularly useful to assess the extent of the turmoil accurately and rapidly. Information exchanges among European authorities. During a market turbulence like the one we have recently witnessed, it is crucial to assess in a timely and comprehensive fashion the implications of the turmoil for the banking and financial industry and, ultimately, for the economy as a whole. In this context, it is important to ensure that the responsible public authorities, notably central banks and supervisors, have the adequate procedures and infrastructure in place to share the relevant information among them.
Lord Mayor, you are a great example to all of us who want to improve the diversity of our institutions, which makes them better places to work in. You are going on to undertake a role of great importance, one that reminds us that whatever the problems that we deal with, there are unthinkable acts of evil taking place. It reminds us not be become obsessed with our own work to the exclusion of the terrible human suffering that can happen. We wish you all the best in your future role, and please accept our thanks for all that you have done and are doing as Lord Mayor. 4  BIS central bankers’ speeches

In the case of LTCM, stress testing could have given banks at least some warning of the types of exposures they could have faced last fall. The critical importance of stress testing is noted very explicitly in our new supervisory guidance. Sound Practice Guidance The sound practices document accompanying the Basle report presents an important set of standards that will guide both banks and their supervisors. It appears that banks generally have tightened the credit risk management standards for their HLI exposures since the collapse of LTCM. However, it is important that supervisors try to ensure that progress continues. Memories tend to be short, and we want to make sure that as markets calm down, as they have in the past months, banks do not return to the old ways of doing business. The adoption and rigorous enforcement of enhanced risk management practices should contribute substantially to limiting excessive risk-taking and leverage at HLIs. This is the case because HLIs cannot trade without access to financing and liquidity from banks and securities  3  BIS Review 27/1999  firms. If each counterparty manages its risks appropriately, the chance of contagion to other institutions and the financial markets more broadly would be reduced substantially. It is this risk of contagion and financial market instability that is the principal concern of central banks and supervisors. Along with other federal banking supervisors, the Federal Reserve has moved quickly to implement the recommendations of the Basle Committee’ s report.