samchain/econo-pairs-v1 huggingface dataset:
First, longrun neutrality: that, in the long run, monetary policy changes do not have a bearing on real quantities and relative prices (such as the level of economic activity or the real interest rate), but rather affect only nominal variables. Second, if a monetary regime is credible, those longterm nominal variables should be “anchored” around a level consistent with policy-makers’ objectives. In a completely credible inflation targeting regime, there should not be a variation in long-term inflation expectations from the 2% CPI inflation target in the UK. The second possible channel is that monetary policy decisions could affect term or inflation risk premia. A simple test of the effect of monetary policy on long-term interest rates is to compare changes in forward interest rates with changes in short-term interest rates on policy decision days. Following recent work by Hanson and Stein on US data, an unexpected innovation to short-term interest rates is identified by looking at the change in “shock” to 3-month, 3-month forward rates on MPC decision days, and examining the reaction of forward interest rates at various maturities. The sample is restricted to end on 31st May 2007 to avoid effects from the financial crisis and QE as a monetary policy instrument. The change in short-term interest rates is then correlated with changes in forward interest rates at different maturities across the yield curve. There is a significant positive relationship between changes in short rates and distant forward rates.

Against the grain of established thinking, and now famously, Raghu Rajan argued at Jackson Hole in 2005 that the Federal Reserve’s commitment at the beginning of last decade to keep policy rates low for a prolonged period had fuelled financial risk taking.9 While this is now  6  See Borio and Disyatat (2011), “Global imbalance and the financial crisis: Link or no link”; and Cecchetti (2011), “Global imbalances: current accounts and financial flows”. 7  The gross foreign assets of each country’s residents, summed across all the countries in the world. 8  See Cabellero (2009), “Global Imbalances and Financial Fragility”, American Economic Review Papers and Proceedings, Vol 99, No. 2, May 2009, pp. 584–588. 9  See Rajan (2005) “The Greenspan Era: Lessons for the future”. Speech given at a Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. August 27, 2005 He warned “persistent low interest rate can be a source of significant distortions for the financial sector, and thence for asset prices. Not only does this mean staying further away from deflation so that extremely low policy rates don't have to be used as a tool, it also implies exercising greater supervisory vigilance when those rates are in place to contain asset price bubbles”. 4  BIS central bankers’ speeches  posited as the “risk channel” of monetary policy,10 there has until recently been relatively little empirical work bearing on whether it actually exists. That may be changing.
In reality, however, we all know that the nature of the problem of achieving such an ideal solution is as much political as it is economic. And nowhere is this tension more palpable than it is in the realm of exchange rate  2  BIS Review 107/2007  and capital account regimes. There are strong and vocal constituencies that are averse to currency appreciation and part of them averse to variability in the exchange rate itself. Not unlike today’s political economy in advanced countries, emerging market politics also risks being less favorable to openness, but more partial to protection of selected industries or protectionism in general. In emerging markets, the political economy and policy tension are even more complex because our markets and institutions are still developing. Hence, the struggle between financial integration and financial stability requires from us a deft balancing act. As such, I hope you appreciate that, when it comes to policy, there is risk in change as well as in inertia. I hope that you also appreciate that if advanced countries pursue more protectionist stance, emerging markets would likely follow suit. One might ask: How then has the Bank of Thailand handled this tension and what is our strategy going forward? My answer to you is that we make every effort to get the economic fundamentals right and strengthening them. But as our financial and capital markets are small, thin, and still developing, we have adopted a balanced approach to managing capital flows under flexible exchange rate.

A salient feature of the Norwegian economy is the importance of oil revenues, which may fluctuate considerably from year to year. The Government Petroleum Fund was established to serve as a buffer against fluctuations in oil revenues. It dampens the impact of changes in oil prices on the Norwegian krone. In recent years, a number of countries have switched to a monetary policy regime based on a target of low inflation. With a passive fiscal policy, monetary policy then in practice assumes a greater role in the stabilisation of economic developments. In Norway, we have a different institutional structure and monetary policy objective. When the krone has been stable and inflation shows signs of rising, Norges Bank’s first reaction is to inform the political authorities that measures other than those available to the central bank are required. Norges Bank would do the same if the requirement of returning the krone to its initial range could no longer apply. In a country with an inflation target, the central bank would deal with this itself, without first consulting with the government authorities. However, as mentioned, Norges Bank cannot with open eyes inflate or deflate the economy. Norges Bank’s mandate must be viewed in the light of the emphasis placed by the government authorities on conducting a disciplined, but active fiscal policy. The mandate gives Norges Bank a basis for conducting a monetary policy that provides a nominal anchor for the Norwegian economy.
7 Another early reference, which presents a more theoretical description of the concept is Eckstein (1981)  4 [19]  Some calculations had been published earlier, but from 1978 the Bureau of Labor Statistics (BLS) started regular reporting of monthly figures for the consumer price index and the producer price index that excluded food and energy prices. At the same time, the Bureau of Economic Analysis (BEA) began to publish monthly figures for the consumption deflator (PCE) excluding food and energy prices. 8 Back in the early days of the inflation targeting regime, it was part of the Riksbank's monetary policy strategy not to allow effects assessed as temporary to influence the actual policymaking to any great extent.9 Since then, various ways of measuring underlying inflation have been designed and used in inflation reports, in-depth articles, commentaries and speeches, for instance. Their purpose has been to describe the inflation process and chisel out an assessment of future inflation.10 Various employees at the Riksbank have also written articles of a more theoretical nature on this subject. 11  Two different ways of calculating core inflation Despite the concept of underlying inflation often being used in central bank communication, there is no unequivocal way to describe it. The most common methods can be divided into two main lines. 12 The first involves using different statistical methods to exclude, or dampen, the effect of temporary price changes over time. 13 The second involves excluding predetermined goods and services whose prices usually vary a lot.

The risk of excluding entire product groups is that prices in these groups may have changed in a more lasting manner. CPIF excluding energy is an often used index in Sweden. The columns in Figure 4 show how energy prices have contributed to CPIF inflation. The contribution from energy prices has at times been fairly large (just over a percentage point). But one can also see that it does not vary as much from month to month if it is expressed as an annual percentage change. A positive contribution in one month tends to be followed by a positive contribution the next month, too. 7 [19]  Figure 4. CPIF inflation and energy prices Annual percentage change. 4.0  105.1  3.5  104.9  3.0  104.7  2.5  104.5  2.0  104.3  1.5  104.1  1.0  103.8  0.5  103.6  0.0  103.4  -0.5  103.2  -1.0  103.0 06 07 08 09 10 11 12 13 14 15 16 17 18 19  CPIF / CPIF excluding energy (index = 100 year 2000), right Contributions to CPIF, oil-related products Contribution to CPIF, electricity Sources: Statistics Sweden and the Riksbank  The solid line in the figure is a different way of showing the same thing. The line shows the ratio between index figures for the CPIF and the CPIF excluding energy.
Denis Beau: What policy framework to help building innovation and growth into Europe’s capital market? Speech by Mr Denis Beau, First Deputy Governor of the Bank of France, at the AFME (The Association for Financial Markets in Europe) Annual Capital Markets Technology and Innovation Conference, Paris, 21 November 2019. * * * Ladies and Gentlemen, The past decades have clearly shown how innovation – in particular technological innovation – have brought new services, reduced barriers and contributed globally to progress and economic growth. However, innovation does not necessarily implies growth for everyone, everywhere. Innovation can weaken some actors, create imbalances and its long-term benefits for society may be, in some cases, uncertain. In addition, I would say that speaking solely about growth is not enough today, in the context in particular of climate change and lowering social mobility. Growth should be sustainable, inclusive and compatible with a necessary level of resilience. Here Central Bankers and Supervisors, in charge of financial stability, have a contribution to make. But what does that mean in the European context for the innovation and growth of our capital markets? My perspective on this rather complex issue is simple: we have to identify  clearly the challenges raised by innovation and be ready to adapt our policy framework if we want that innovation goes with sustainable, inclusive and resilient growth of the European financial market.

To support my point, I would like first to explain how we at the Banque de France and the ACPR approach this twofold issue (identify the challenges and adapt when necessary our policy framework) (1). I will then illustrate our approach by addressing the case of financial market infrastructures (2). 1. Identify the challenges and be ready to change our policy framework Technological innovation has the power to create new services for consumers but also to reshape financial market structures. I will not elaborate on a phenomenon that everybody can see developing in the financial sector. The whole value chain is being impacted by Fintechs as well as by Bigtechs, which are introducing almost every day new ways to pay, to provide credit, to get insurance and, of course, to invest within capital markets. By doing so, they are  also modifying the financial ecosystem that we supervise and may contribute to an increase or a shift of risks in the financial system. Data and consumer protection issues raised by new technologies, anti-money laundering challenges posed by new usages, operational risks specific to third party providers and cloud outsourcing, including cyber-risks, competition impacts: the list of issues is quite long! I should also mention the systemic threats that large actors can represent if they use their huge consumer base and leverage on worldwide networks effects without sufficient regard for financial stability consequences. Facing these changes, Central Banks and Supervisors need to adopt the right mindset.
On the other hand, I strongly suspect that it would be difficult to gain understanding for a policy that involves private individuals also encountering negative rates on their deposit accounts; in other words having to “pay to save”. This is perhaps a limitation that simply has to be accepted. Ultimately, the legitimacy of, and confidence in, an independent institution like the Riksbank is based on the general public understanding the policy conducted, or at least not considering it to be illogical and unjust. But it is exactly this that I think constitutes the limitation. That zero per cent should be some magical limit for the repo rate is for me more difficult to understand, however. 7  6  Jansson (2018). 7 It is worth noting that the real yield on bank accounts is often negative, even if the nominal rate is positive. That  a negative nominal interest rate is special is, in this sense, an example of so-called “money illusion”. That said, I realise of course that the figure zero is of particularly psychological significance in many contexts. When the zero as such (and negative figures) was introduced in mathematics, it was, for example, met for a long time with confusion and even loathing, see, for instance, Weiss (2017). 5 [17]  During the almost three years that the repo rate was –0.5 per cent, normal banksaver deposit rates never became negative, so there seems nevertheless to be some scope for negative interest rates.

Employed persons in each sector in per cent of the total number of employed persons. Source: Statistics Sweden  16 [17]  Figure 3. Development of the Swedish krona, Norwegian krone and New Zealand dollar against the euro Index, 2015 = 100 120  120  110  110  100  100  90  NZD  90  NOK SEK 80  15  16  17  18  19  80  Source: ECB  17 [17]
In all these examples host authorities have a legitimate interest in being able to influence supervision, share assessments and have a say in the event of a crisis situation. They have been given the task of protecting the soundness and stability of their financial sector and the general public in the host country will rightly expect their authorities to be able to do this. At the same time, the home authorities should have an interest in sharing resources in crisis prevention and risks and costs in crisis management and resolution with the host countries. In the current setting, however, this is only possible to a very limited extent. First, there is a need to share information between the home and the host. This should be the least difficult, but in practice everyone who has tried to share information between authorities knows it can  BIS Review 35/2005  5  be a complicated and cumbersome process, at least until there is an established routine. Even when there are no confidentiality concerns there are many practical obstacles to overcome. Information sharing is not only about sending data back and forth, but more importantly, it is about explaining information and sharing assessments. As long as hosts are under the impression that they know a lot less than the home, it will be very tricky to cooperate. Second, there is a need to cooperate on actions vis-à-vis the bank or the group and its components.

In the event of a crisis it can only hope that the home country will take the host country’s situation into account when managing the crisis. The home country, on the other hand, faces a situation where it could be necessary for its central bank to provide emergency liquidity assistance (ELA) to support a bank which has a large part of its activities in other countries. Should the bank need to be reconstructed it would be the home country’s tax payers that would have to foot the bill – either by supplying the necessary capital to the bank or by supporting the deposit guarantee system with the funds needed to pay out insurance to the bank’s depositors. The imbalance between home and host countries may be further deepened by differences in size between the two countries. One case will be that of a big home country and a smaller host country. The banking group’s exposure to the host country is then probably relatively small on a consolidated basis. This results in the home country authorities spending relatively limited resources – in terms of staff – on the foreign subsidiary’s activities in the host country. If such a banking group runs into problems, the home country authorities will not necessarily view it as systemic, while the host country authorities certainly will do. How to deal with the home-host asymmetry?
The use of this type of extreme scenarios, which are plausible but have a relatively low probability of occurring, is an integral characteristic of the main international stress tests and is consistent with the goals of prudential regulation which require that banks have sufficient capital to absorb unexpected losses. The adverse scenario simulates a further increase in energy prices and a greater impact of bottlenecks on global trade. This drives up inflation and, consequently, accelerates the monetary policy response. It also entails a worsening of financial conditions.31 Under the severe scenario, the price shocks are slightly more significant than under the adverse one, but the main difference is the inclusion of a more marked worsening of households’ and firms’ confidence, which causes further falls in the main domestic demand variables (consumption and investment).32 The adverse scenarios for the foreign economies that are important to Spanish banks are calibrated so that their severity is consistent with the impact of the shocks on the Spanish economy. These scenarios thus enable a rigorous analysis of the banking sector’s resilience to the risks deriving from the current geopolitical setting. 31  Specifically, further increases in the sovereign risk premium and the spreads in bank lending to households and firms, and a decrease in the value of the assets that make up household wealth, with substantial falls in stock prices and house prices.

14  In 2008, there were 100 branches per 100,000 inhabitants in Spain, compared with around 60 in France and Italy (data as at December 2020, which are the latest data available with comparable ECB information for the different European countries). 15  Second only to the Netherlands. 16  In Spain branch closures have affected municipalities of all sizes, albeit with slightly more cuts in larger ones (around 56% since 2008 for municipalities with more than 50,000 inhabitants) and fewer in smaller ones (around 40% for those with fewer than 5,000 inhabitants). The smaller municipalities are the only ones where the population declined in this period, in keeping with the demographic decline in Spain’s rural areas in recent decades. 9  Fifth, as regards the cost of bank funding, in the money markets secured interest rates stand at historically low levels. But wholesale market funding costs have risen, on expectations of a less accommodative monetary policy and the uncertainty prompted by the crisis in Ukraine. Indeed, expectations of interest rate rises have fed through to wholesale market interest rates on long-term bank debt (a measure of funding costs) more robustly than to the Overnight Index Swap (OIS) rate.17 Thus, banks’ credit risk spread has widened. There were mixed developments in the cost of new issuances in 2021 across instrument types and issuers. Banks stepped up their debt issuance to comply with prudential and resolution requirements, with issuances of Tier 2 instruments and contingent convertible bonds (CoCos).
Going back to your question about Japan, all of this is very much with the intent of avoiding the situation of deflation that Japan had from the mid-1990s to about 2013. That was a very costly episode to have and we are intent on making sure inflation goes back to target in order to avoid that situation. What would you say to the criticism – and it’s been quite loud in some eurozone countries – that the ECB has been deaf to some of the side effects of its policies, say, in particular towards savers and pensioners? At any time when the interest rate goes down, it clearly has a different effect on those who have a mortgage and those who have a lot of debt — governments and corporates — than it does on those households that are maybe saving for retirement, those who are accumulating funds and pension funds. That has always been true. Monetary policy has different effects on savers and debtors. What is true at the moment is that this episode has been going on for years now. We have had very low interest rates for a long time and that does have implications for the financial system and for these groups. Going back to the previous question, if we did not pursue these policies then the medium-term scenario would be worse. If inflation gets worse, if it gets lower, if it gets locked in at a low rate, then the prospects for interest rates recovering in the future would be less.

But I would claim that the major change would instead be if the Riksbank does not issue any money that is used. The payment market is an important part of a country's infrastructure. Just think about how often you pay for something, and how difficult it would be if it didn't work! Would it really be the right thing to allow part of the infrastructure to be completely privatised without any analysis or discussion? What our analysis clearly shows is that the effects of an e-krona on the financial sector as well as monetary policy and the economy as a whole largely depend on how the e-krona is designed. It is therefore appropriate to begin with small steps forward and to learn along the way. The e-krona makes the Swedish payment system more stable and inclusive Cash does not function as a good alternative if we were to have no electricity in a crisis situation, as electricity is required to withdraw cash from an ATM. 14 Sweden may therefore need several alternative means of payment that can function in crisis situations. The more different systems and alternatives that are available, the less vulnerable we will be. An e-krona system would be a parallel, independent system to the card payment systems offered by the private sector, which reduces vulnerability in relation to having only one system.