samchain/econo-pairs-v1 huggingface dataset:
If monetary conditions in Switzerland called for it, the SNB could sell some of its reserves in order to shorten its balance sheet. Although we have not yet reached this point, such an eventuality should not be ruled out. 11 The SNB must be able to deploy its balance sheet at all times, quickly and without restriction. These reserves therefore have to meet stringent security and liquidity requirements. Consequently, as chart 3 shows, we invest a very large proportion of our reserves in government bonds denominated in the major currencies, such as the euro, the dollar, the yen, pound sterling and the Canadian dollar. Holding liquid investments that can be mobilised rapidly allows the SNB to use its balance sheet at any time, should monetary policy require it. A second aspect that differentiates us from other investors is that we remain as neutral as possible vis-à-vis the market. In other words, we must be able to move large volumes without unduly influencing prices. This neutrality ensures that the SNB is able to build up and scale back its investments quickly and efficiently, while avoiding conflicts of interest with its mandate. Neutrality also guarantees that the SNB’s investment policy remains independent of all political considerations. In this sense, neutrality is an essential condition for the optimal fulfilment of our mandate. Finally, at the operational level, the SNB differs from other investors in that it cannot protect itself against the greatest risk to these reserves – currency risk.

First, both climate change and its effects on the economy are hard to estimate with any degree of accuracy. 4 Second, the impact of climatic phenomena is transnational and this complicates efforts to respond appropriately. Third, the effects of climate change are felt incrementally and over a very long timescale, which includes future generations. The needs, precise aspirations and technical capabilities of these future generations are, by definition, unknown and therefore difficult to integrate into the analysis. And finally, the effects of climate change are potentially irreversible. How can this problem be solved? When economic agents fail to take sufficient account of the cost of their actions, economic theory recommends introducing a tax which incentivises them to adapt their behaviour. In the case of climate risks, a carbon tax can be used to incentivise individuals and organisations to reduce their emissions of CO2, the main greenhouse gas. 5 The theory may be clear; however, important considerations, such as setting and realising an overarching objective, require political dialogue. These considerations are not part of the SNB’s mandate. The SNB contributes to the stability of the economy as a whole, and it is not within its legal remit to promote or hinder any particular economic or societal development. The SNB can only credibly and effectively fulfil its mission of maintaining price stability if it concentrates on the monetary policy tasks assigned to it by law. 2 3 4 5  Hsiang S. and R.E.
Early in his career Professor Rogoff worked as a central banker in the International Finance Division at the Board of Governors of the Federal Reserve System. In this period, he wrote two of the most celebrated papers in monetary economics and international finance. One, which appeared in 1985 in the Quarterly Journal of Economics under the title “The optimal degree of commitment to an intermediate monetary target”, is especially cherished among central bankers (and still his most cited contribution according to Google Scholar with over 2,100 citations). It forcefully laid out the rationale for the delegation of monetary policy to an independent central bank with an explicit price stability objective, a fundamental principle obviously enshrined in the ECB mandate. The second contribution, co-authored with Richard Meese, appeared in 1983 in the Journal of International Economics under the title “Empirical exchange rate models of the seventies: Do they fit out of sample?” and is one of the most cited papers in international finance. It established key empirical regularities about major currencies exchange rates. The implication that nominal exchange rates are best modelled as unpredictable “random walks” is still the basis of the best practice followed by many institutions. This paper marked the beginning of Professor Rogoff’s long-standing prominence in the field of international finance and was followed by a steady flow of equally distinguished contributions, in some instances literally rewriting history.

William C Dudley: The importance of incentives in ensuring a resilient and robust financial system Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the US Chamber of Commerce, Washington DC, 26 March 2018. * * * It is a pleasure to have this opportunity to speak to you. In my remarks today, I will discuss financial regulation and the ways in which proper incentives help ensure resiliency in the financial system. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.1 We have come a long way since the global financial crisis in building a more resilient financial system—one that can better support the provision of financial services to American households and businesses such as those represented here, both in good times and in bad. But, there is still unfinished business. On the regulatory side, for example, there is more work to be done to ensure that a systemically important bank can be resolved effectively on a cross-border basis in the event of failure. Additionally, the efficiency, transparency, and simplicity of the regulatory system could be improved without weakening the core reforms to capital, liquidity, and resolution that have made the financial system much stronger. Most importantly, we need to recognize that an effective regulatory regime and comprehensive supervision are not sufficient. We also need to focus on the incentives facing banks and their employees.
Selecting an inflation target of two per cent implicitly chooses one of the possible combinations. If we succeed in this, we gain greater scope to manage future economic shocks, compared with if we give up and allow a new level of inflation that is lower than the inflation target to be 18 An interesting academic discussion on helicopter money is taking place; see, for example, Galí (2020). 18 [25]  established. After all, in the discussion above, we noted that, if anything, the international discussion revolves around raising the inflation target. A closely related problem is that it has turned out to be difficult to understand the development of inflation recently using the standard theories that form the basis of the monetary policy analysis. The Phillips curve is estimated to be increasingly flat, which is to say that the relationship between real activity and inflation seems to have become weaker. 19 Many economists were surprised by inflation not falling further in the financial crisis, when resource utilisation was seen as being very weak. We need a better understanding of how companies actually set their prices and of how their behaviour interacts with the macroeconomy. A great deal of research is currently focusing on studying different types of micro data and hopefully we will have more knowledge of these matters in the period ahead. Appropriate monetary policy requires freedom of action There are many interesting things to think about regarding all of the different suggestions circulating in the discussion.

The sole purpose of these actions has been to promote the dual mandate objectives of maximum employment and price stability in the wake of the financial crisis. The FOMC has stated that it currently anticipates keeping short-term interest rates exceptionally low until late 2014 and this has contributed to the decline in long-term rates. In addition, large-scale asset purchases and the maturity extension program have pushed down longer-term interest rates by removing duration from the private market. As a result, both the U.S. government and private-sector borrowers have benefited from unusually low borrowing costs. Indeed, the net interest burden data shown in Figure 2 actually overstates the net cost to Treasury. That is because the interest payments from the Treasury to the Federal Reserve are included in the net interest cost shown in Figure 2, but no offsetting adjustment is made for the fact that the Fed remits almost all of the interest it receives from the Treasury and on  BIS central bankers’ speeches  1  its other portfolio holdings right back to the Treasury. The Federal Reserve’s remittances to the Treasury are included in the budget separately in the miscellaneous receipts category. Thus, one should deduct these receipts from the debt service numbers to properly measure the Treasury’s net interest burden. Normally, this adjustment doesn’t change the picture much. However, it is relevant now because Federal Reserve remittances are unusually high.
This would not be problematic if nominal rates could fall as far as necessary; for example, with expected inflation of 1%, to achieve a real interest rate of, let’s say, -2%, the nominal rate would have to be lowered to -1%. The problem is that nominal interest rates cannot drop as far into negative territory as sometimes would be necessary. Were central banks to set interest rates of -5%, for example, commercial banks would endure negative yields on a large part of their assets, which would adversely affect their profitability and, ultimately, their financial intermediation  2  The concept, determinants and implications for monetary policy of the natural rate of interest are discussed in Galesi et al. (2017). Holston et al. (2017), for example, estimate that in 2016 the natural rate was positive, but very close to zero, in the United States. 4 See, for example, Fiorentini et al. (2018). 3  7  capacity. This would have an attendant negative impact on credit supply, economic activity and inflation. There is therefore a lower bound on nominal interest rates. Should central banks lower interest rates below this bound, the effect on the economy may be contractionary rather than expansionary, owing to the adverse effects on the financial system as a whole.5 The level of this lower bound on interest rates is not directly observable and varies over time based on the financial sector’s situation. In any event, it represents the floor for central bank interest rate cuts.

True, some of them had to do with political change and policy uncertainty to the heart of the developed world, but on top of that, major empirical and theoretical puzzles are challenging central tenets of monetary policy. In particular, inflation appears not to be responding to monetary policy as expected in advanced economies. Despite record- low interest rates over many years and massive liquidity injections by central banks through asset purchase programs, inflation has not picked up as expected. Explaining the apparent unresponsiveness of inflation has become a theoretical and empirical challenge that has drawn great attention from academia and policymakers in the last couple of years. Inflation dynamics and the way they interact with other economic variables are, of course, crucially important to central banks that have price stability as their core mandate. Most of them currently deliver on this mandate under a forward inflation targeting framework, whereby the stance of monetary policy seeks to achieve convergence of forecasted inflation to the target over a medium-term horizon. This prevents central banks from having to respond to short-term price volatility, but if inflation does not respond to monetary impulses as predicted by models, policymaking may become a much more complex game. If price responses get delayed in a highly accommodative environment, financial imbalances may build up, fiscal discipline may be eroded and inflation risks may get underpriced by markets, exposing themselves to reversals with data surprises in the future.
First, the potential for this outcome is mitigated by the fact that the Federal Reserve has considerable non-interest bearing liabilities on its balance sheet – namely currency. These liabilities incur no interest expense regardless of the stance  2  While I have categorized providing a forecast for the future path of the policy rate as a form of unconventional monetary policy, this may be a misnomer in that some central banks use this form of forward guidance as part of their standard communication strategy, and the Federal Reserve may choose to continue to provide this form of forward guidance even after its policy rate is no longer constrained by the zero lower bound. 2  BIS central bankers’ speeches  of monetary policy. This means that short-term interest rates have to rise appreciably before the Federal Reserve’s net interest margin turns negative. Second, even if the Federal Reserve were to incur an operating loss either because of an increase in interest expense or because of realized losses on asset sales, the Federal Reserve can create a deferred asset on its balance sheet, obviating the need for funding from the Treasury to the Federal Reserve. In this sense, the Federal Reserve would retain its budgetary independence. In the case where the Fed recognizes a deferred asset, its remittances to the Treasury would cease until that deferred asset was paid down.

The public consultation launched by the Commission is a unique opportunity to put forward constructive proposals, on both sides of the coin: on the demand side, through well-calibrated prudential incentives for market participants; and on the supply side, notably with the extension of the scope of clearing, for products and entities. We have a collective responsibility to reduce systemic risk and we have to act now. As a conclusion, let me take a take inspiration from the recent Adam Mc Kay and Leonardo di Caprio movie “Don’t look up” to provide a broader perspective. We may be coming out of a storm called Covid, which has heavily disturbed our traditional landmarks and consumed a lot of our energy. We may be facing another crisis in geopolitics. But we must not forget to “look up” at the stars to see where we are in our journey and to remember where we are going… The two “great transformations” ahead of us require a Financing Union in Europe. The time to act is now. I thank you for your attention. 4/4  BIS central bankers' speeches
The latter system provided the economy and prices with a fixed nominal anchor. Inflation was determined by growth in output on the one hand the supply of gold on the other. This was a system we had in common with our trading partners. Furthermore, we participated in the Scandinavian currency union as from 1875. The gold standard was suspended during World War I when the British government largely financed the war by printing money. Parity policy in the interwar years was unsuccessful in many countries. After World War II, countries made a joint effort to stabilise price  BIS Review 102/2007  1  developments by establishing the Bretton Woods system. The US dollar was pegged to gold and the other currencies to the dollar. In this way, we chose – with the value of gold as the basis – a fixed exchange rate and indirect inflation in other countries as our nominal anchor. The Bretton Woods system collapsed in 1971. In the absence of gold as an anchor, the real value of banknotes and coins and bank deposits was now dependent on confidence that the central banks would not inject so much cash into the economic system that the value of money declined. The various countries chose different solutions. In Norway, we looked to other countries for both confidence and our inflation level, by tying our exchange rate in various ways to other countries’ currencies. In the ten years from 1976 to 1986, confidence in this policy was severely eroded.

In addition, both house prices and debt accumulation are affected by structural changes in capital and credit markets and by changes in lending willingness, demographic trends and migration patterns. It is difficult to determine to what extent house prices have risen as a result of structural changes and wealth gains and to what extent house prices have been pushed up by expectations of a continued high rise in house prices. Developments since the beginning of the 1990s may have engendered expectations that house prices will only continue to rise. This may have increased house purchases for pure investment purposes and induced younger buyers to enter the housing market earlier than otherwise. The pronounced fall in  4  BIS Review 102/2007  saving over the past few years indicates that households take greater chances. The housing market may have been in a state of euphoria. We can influence house prices through the interest rate, but if the interest rate had been increased to a markedly higher level in order to curb house price inflation, the krone would have been significantly stronger and CPI inflation significantly lower. Yet it is low and stable inflation that is the operational target of monetary policy. There is symmetry here as well. Should house prices fall sharply, we will in interest rate setting concentrate on dampening the effects on inflation and overall activity in the economy.
Department for Business, Energy & Industrial Strategy (2017), ‘Industrial Strategy: building a Britain fit of the future’, BEIS Policy Paper. Espinosa-Vega, M and Russell, S (1997), ‘History and Theory of the NAIRU: A Critical Review’, Federal Reserve Bank of Atlanta Economic Review, 1997 Q2. Gardiner, L (2016), ‘A-typical year?’, article for the Resolution Foundation. Gordon, R (2013), ‘The Phillips Curve is Alive and Well: Inflation and the NAIRU During the Slow Recovery’, NBER Working Paper, No. 19390. Gregg, P, Machin, S and Fernandez-Salgado, M (2014), ‘Real Wages and Unemployment in the Big Squeeze’, The Economic Journal, Vol. 123, pp. 403-432. IMF (2017), ‘Understanding the Downward Trend in Labor Income Shares’, IMF World Economic Outlook, Chapter 3. Krueger, A (2018), ‘Reflections on Dwindling Worker Bargaining Power and Monetary Policy’, Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole. Manning, A (2003), Monopsony in Motion: Imperfect Competition in Labor Markets, Princeton University Press. Moscarini, G and Postel-Vinay, F (2017), ‘The Cyclical Job Ladder’, Annual Review of Economics, Vol. 10, pp 166-188. Mueller, H, Ouimet, P and Simintzi, E (2017), ‘Wage Inequality and Firm Growth’, American Economic Review, Vol. 107, No. 5, pp. 379-383. Phillips, AW (1958), ‘The Relationship between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957’, Economica, Vol. 25, pp. 283-99.

21  All speeches are available online at www.bankofengland.co.uk/speeches  21  Chart 8: Financial markets’ inflation expectations (5 year – 5 year breakevens)  Per cent  9 8 7 6 5 4 3 2 1 0  1985  1988  1991  1994  1997  2000  2003  2006  2009  2012  2015  2018  Sources: Bloomberg and Bank calculations  Chart 9: Involuntary part-time share of employment and average net desired hours, alongside unemployment  Per cent  Hours per person  10  0.7 0.6 0.5  8  0.4 0.3  6  0.2 0.1 4  0 -0.1  2  -0.2 -0.3  0 2001  -0.4 2003 2005 2007 2009 Involuntary part-time share (LHS) Net additional desired hours (RHS)  2011  2013 2015 2017 Unemployment rate (LHS)  Sources: ONS and Bank calculations. Notes: Involuntary part-time workers are those that would like a full-time job but haven’t been able to find one. Average net desired hours is the average number of additional hours that employed individuals would like to work at their current hourly rate.
Over the last five years, inflation has stayed broadly in line with the price stability objective set by the European Central Bank, i.e. inflation below but close to 2% over the medium-term. Gone are the days when European citizens had to worry about the purchasing power of their savings. This stability goes beyond the behaviour of prices. Inflation expectations themselves have been remarkably stable, including during the recent period when oil prices jumped to levels no one could have expected only a year ago. This, by itself, illustrates the credibility achieved by the Eurosystem of Central Banks, after only six years of existence. Second, European households and companies are reaping the benefits of that credibility. Long term interest rates stand at a historically low level, around 100 basis points below the level in the United States. So, even after the recent increases in short term rates, monetary and financial conditions remain extremely favourable for investment and growth. And indeed, we might be witnessing in Europe the start of period of sustained and stable growth, at least if current projections and surveys are proven to be right in the coming months. A third benefit of the Euro is the boost it gives to financial integration in Europe. In many segments, European financial markets have reached the depth and liquidity which, up to now, were the preserve of dollar markets. This stimulates productive investment, helps in restructuring (as witnessed by the current wave of M&As) and, more generally, allows a better allocation of savings and sharing of risks.

In that sense, monetary union in itself has a clear political dimension. This was only possible because euro area members had achieved a high degree of convergence in attitudes and preferences. It also happens that, in all countries in the world, Central Banks have been made independent in the last decades, and monetary policy has been, as a consequence, depoliticised. This was seen as a necessity to ensure price stability. From that point of view, the euro is no exception and the ECB's mandate is similar to those of other Central Banks. So, monetary union in Europe is well grounded, both on its technical and political pillars. Actually, the euro to day seems to me the main driver for European integration. It exists. It is a success. The institutional process is working smoothly. Sharing the same banknotes and currency has given European citizens a strong sense of common identity and joint destiny. And those who worried that monetary union would impede growth in Europe should be comforted by our recent record. Europe's growth rate to day is equal – or higher – to the US. In the six years since the creation of the euro, twice as many jobs have been created in Europe as compared to the US economy. Admittedly, we are lagging behind in terms of productivity growth, innovation capacity and market flexibility. But there is nothing which cannot be corrected provided the necessary policies are implemented with determination and continuity. This is why, looking beyond the current difficulties, I feel very optimistic.