samchain/econo-pairs-v1 huggingface dataset:
The limit for how long and how much monetary policy can raise employment is determined in practice by the economy’s long-term growth potential, which in turn depends partly on how well the labour market functions. When we conduct monetary policy with an inflation target, this means under normal circumstances that we can help stabilise actual output around its long-term potential. If the Riksbank is to be able to take any account of employment in the short run, however, it is particularly vital that economic agents have confidence in monetary policy and the inflation target; this is a clear lesson from the situation in the 1970s and 1980s. As you know, the principal instrument we use to try to meet the inflation target is the repo rate. We set this rate with the aid of forecasts of inflation a couple of years ahead. Naturally, a lot can change in the space of two years so that our forecasts do not prove accurate. We can make up for this to some extent by being able to change the rate in the light of new information. But we can’t compensate entirely for such events, of course. Sometimes, developments affect inflation at very short notice: a sharp hike in electricity prices, an equity price bubble that bursts, a war that heightens unease in the world and curbs demand, etc.

14.10.2019  Financial stability situation in Spain X Financial Sector Meeting/Expansión-KPMG Pablo Hernández de Cos Governor  Good morning ladies and gentlemen. Let me first thank the organisers for inviting me to participate in this tenth edition of the Financial Sector Meeting. On this occasion my address will focus on the Banco de España’s assessment of the main factors of risk to financial stability at present, the potential impact on deposit institutions and the tools available to the Banco de España and the other authorities to mitigate such risk. Assessment of the balance of risks to financial stability The balance of risks to the Spanish financial system’s stability has worsened somewhat in the past six months. This has been due in particular to the downward revision of the global economic outlook. Indeed, global GDP growth continued to ease, to a year-on-year rate of 2.8% in 2019 Q2, more than 0.5 pp lower than a year earlier. This slowdown is particularly affecting some emerging economies and Europe. Moreover, growth projections have been revised downwards in recent quarters in most economies. In fact, the increase in global GDP this year is expected to be the lowest since the international financial crisis. This downturn in activity has likewise affected the Spanish economy. As a result, the Banco de España revised its growth projections for our economy down last September, to 2% in 2019, 1.7% in 2020 and 1.6% in 2019.
Today most central banks are concentrating their monetary policies on maintaining price stability; and maintaining inflation at lower stable levels. John Exter, founder Governor of the Central Bank of Sri Lanka emphasized on the very first day of the establishment of the Central Bank, “There is no financial wizardry by which the Bank can suddenly pull out of a hat a higher standard of living for everybody. The Bank’s contribution must necessarily be a long-run contribution. The Bank does not itself produce goods and services, but it should, by creating the right monetary conditions enable the country…. to do so ”. Central bankers would like very much to have the ability of a captain or a pilot who knows exactly where he is heading, how his craft (i.e. economy) works and how his actions affect it course. Unfortunately we do not have that ability and as observed by some, we are more like early navigators who operate in a world of huge uncertainty with no reliable maps or compasses. Because of lags in the availability of statistics, we cannot know precisely, all the information we need. Policy instruments in our possession operate with time lags which are also not entirely precise. Over the years, we have acquired powers and independence, but there are limitations in any central bank’s ability to steer its economy with precision. Hence, central banking indeed is a challenging task, which requires continued efforts to explore how our economies work and how our policy instruments operate.

Today, only a few central banks, including Fed Reserve is still responsible for bank supervision. Others have handed this job to a separate agency. In the 1960’s the conventional economic wisdom was that monetary policy could reduce unemployment and directly promote economic growth. The theoretical basis for this was provided by the famous Phillips curve, which depicted an inverse relationship between inflation and unemployment in Britain; when unemployment was high inflation was low and vice versa. This appeared to have suggested that central banks could permanently reduce unemployment by tolerating a bit more inflation. In fact, many countries attempted to do so. We all have our experience in attempting to directly promote economic activities by releasing high powered money through various credit schemes and direct involvement in development activities. However, at the end we had more inflation, either visible or hidden, without an appreciable reduction in unemployment or improvement in growth. In fact, the rate of inflation associated with a given level of unemployment had risen through the 1970’s and policy makers had to abandon the Philip curve. This in fact was predicted by Milton Friedman and Edmund Phelps who challenged the Phillip curve. As they pointed out, the trade off between inflation and unemployment was only short term. As soon as people come to expect higher inflation they would demand higher wages, and unemployment would rise again . There is no trade off between inflation and unemployment. In the long run, monetary policy  BIS Review 52/2007  1  could influence only inflation.
The key to realising the higher return is to adhere to the strategy also in times of heightened uncertainty, as we did through the financial crisis in 2008 and 2009. An official framework for rebalancing back to a set allocation to equities has now been established. This will help ensure that this strategy is carried out during the next period of high volatility in financial markets. Chart: Lower costs Management costs for equities are higher than for fixed-income securities. The cost of managing many small shareholdings is higher than managing a few large ones, as is the cost of managing investments in emerging markets in relation to developed markets. Overall management costs as a percentage of the GPFG have nonetheless fallen over time. We have exploited its size to realise economies of scale. In the past few years, costs have been reduced also in krone terms. This is partly due to reduced use of external managers. Costs for external services, such as IT, custodian and settlement services, have also been lowered. Relative to the size of the GPFG, management costs are modest. Norges Bank continuously seeks to achieve efficiency gains without impairing the quality of investment management. In 2012, management costs came to 0.05 percent of the GPFG. Chart: Transparent and professional management Norges Bank meets international and national transparency standards relating to investment management. We have high ambitions with regard to transparency. Yet, we must weigh different considerations.

In the case of investments in individual companies, extensive  BIS central bankers’ speeches  1  transparency can come into conflict with confidentiality requirements. In order to ensure confidential communication with the governing bodies of the companies in which we have a stake, both parties must be certain that the dialogue is indeed confidential. In 2012, we expanded our collaboration with Norwegian academia. NBIM participated by giving lectures on investment management at several universities and other academic institutions. Our programme, the Norwegian Finance Initiative, has helped support research in financial economics at different levels. This initiative contributes to enhancing the quality of research in financial economics among Norwegian academic institutions and to stimulating public debate on the management of the GPFG. This framework for cooperation is also used within Norges Bank, both in investment management and the development of strategy. Thank you for your attention. I now give the floor to the Chief Executive Officer of NBIM, Yngve Slyngstad. 2  BIS central bankers’ speeches  BIS central bankers’ speeches  3  4  BIS central bankers’ speeches
But in a monetary policy perspective it may be a problem if resource utilisation is so high that inflation risks overshooting the target. If resource utilisation is so low that inflation risks undershooting the target, the general political and monetary policy implications coincide. An estimate of what level of employment can be regarded as normal can be obtained by calculating an HP-based trend similar to that used for calculating the GDP gap. This can be considered to represent a normal situation in the labour market, without temporary disruptions that affect the supply of or demand for labour. Gaps that measure the actual deviation in employment from the normal level, either in the number of persons or in the number of hours worked, are called labour market gaps. Figure 4 shows two such labour market-based gaps. Capacity utilisation But neither the number of persons employed nor the number of hours worked provides a really good picture of resource utilisation. During a severe cutback in output such as in the current economic situation, companies tend to a large extent to retain their employees, although they have less work for them to do. To obtain a better picture of resource utilisation the labour market statistics need to be supplemented with data from, for instance, Statistics  2  For a discussion of the flexprice gap and monetary policy, see Jonsson, M., C. Nilsson and S. Palmqvist (2008), “Should monetary policy stabilise resource utilisation?" Economic Commentaries 1, Sveriges Riksbank. http://www.riksbank.com/upload/Dokument_riksbank/Kat_publicerat/Ekonomiska%20kommentarer/2008/0803 06e.pdf.

Capacity utilisation in industry Index and percentage deviation from HP trend respectively, seasonally-adjusted data 5  100  4 95  3 2  90  1 85  0 -1  80  -2  75  -3  Statistics Sweden, actual capacity utilisation in industry (left scale) NIER, current capacity utilisation in manufacturing industry (left scale) GDP gap (right scale)  -4  70  -5 96  98  00  02  04  06  08  Note. Trend calculated using the Hodrick-Prescott filter. Broken lines refer to the Riksbank's forecasts. Sources: National Institute of Economic Research, Statistics Sweden and the Riksbank  Figure 6. Resource utilisation indicator Index and percentage deviation from HP trend respectively, seasonally-adjusted data 5  5  4  4  3  3  2  2  1  1  0  0  -1  -1 -2  -2 Resource utilisation indicator Hours worked gap Employment gap GDP gap  -3 -4  -3 -4 -5  -5 96  97  98  99  00  01  02  03  04  05  06  07  08  Note. Trend calculated using the Hodrick-Prescott filter. The standard deviation of the resource utilisation indicator is normalised to that of the GDP gap. Broken lines refer to the Riksbank's forecasts. Sources: Statistics Sweden and the Riksbank  BIS Review 66/2009  11
In one camp are those who think that the current inflation is a jeopardising phenomenon which risks leading to an inflationary situation, and consequently calling for an immediate intervention to subdue the balance sheet policies and the increase of interest rates. The other camp holds that current inflationary developments are a temporary phenomenon which has arisen from supply-side problems that reflect the negative effects of the pandemic. These diametrically opposed views among economists show that work to improve inflation models should continue, particularly as, after all these years of studies and research to understand the phenomenon of inflation, we are again going through doubts and 1/2  BIS central bankers' speeches  mixed positions. In last year’s workshop we have foreseen the high uncertainty in relation to both production and distribution networks, are two factors that are hampering the recovery momentum. The pandemic appears to have placed burdens on globalisation, and this is expected to have significant effects on the economy. The combination of both factors has yielded an immediate impact on prices, driving inflation up as a result of supply-side effects. Nevertheless, this conclusion is ambiguous. Many voices from the world of academia and central banking consider that inflation may also be an effect of central banks’ expansionary policies. To be sure, these opposing views have arisen as a result of ambiguities related to the effects, geography and degree to which the pandemic has affected the economy. That is why studies on the effects of the pandemic should continue.

Less clear principles for policy in combination with reduced transparency regarding, for example, the reasons for making decisions, will hardly lead to a policy which will be more successful in the future. Many years' experience in the vicinity of economic policymakers suggests to me that the opposite is  4  BIS Review 38/2001  more probable. Among the most important things one can do in this type of work is to try to build up clear processes which contribute to decision data, based on good economic analyses, being produced in a systematic way. And that this decision data is subjected to as wide an examination as possible. I am convinced that our ambition to be as clear and open as possible has served us well. Starting with a numerical, symmetric objective and a guiding rule, in the way that we have done, we have been forced to think through every question with which we have been confronted in a more precise manner. This has resulted in our gradually increasing our understanding in a way which I think would hardly have been possible otherwise. Certainly it is not yet over, and in this context, future developments will place new demands on us and impose further intensification and exactitudes. There is also a connection between transparency in relation to the outside world on the one hand, and internal work on the other. In getting rid of secrecy we were able to introduce a more realistic debate on monetary policy.
[...] the existence of public debt [on a large scale] imposes frictions and obstacles to readjustment [...] If the Government wish to help revival, the right way for them to proceed is, not to revert to their old habits of lavish expenditure ... “ The debate between Keynes and Hayek took place at a time when millions of people were out of work. Governments, firms and households were heavily in debt and many banks were on their knees. In many countries, deflation made debt even heavier to bear. At the same time, pessimism and caution put a damper on the willingness to spend. Deflation and unemployment led to a low level of consumption, and investment that could have generated jobs and growth was held back. The question is, then, can the authorities curb a crisis by spending borrowed money? According to Keynes, spending would not only prevent the economy from sinking even lower, it would also reduce the extent of the crisis and bring the economy back into balance more quickly. Or was Hayek right when he claimed that misjudged attempts to curb a crisis by means of debt-financed spending can sow the seeds of a subsequent and even deeper crisis? According to Hayek, measures should be focused on the underlying challenges, such as public debt, that had created the crisis. In Hayek’s opinion, higher public debt would inevitably end up funding unproductive investments and consumption in the public sector, which would lead to low growth.

In this decade, we have been able to tighten the collateral requirements somewhat, most recently in 2005, when we among other things restricted access to using bank securities as collateral. At that time, we announced that we would later go a step further. This promise remains intact. Central bank measures have curbed the fluctuations in interbank interest rates, but only for loans with short maturities. For longer maturities, premiums have continued to rise, and the premium on 12-month money market rates is now more than one percentage point. The turbulence has particularly affected banks with low deposits and considerable money market loans. Both Roskilde Bank, recently taken over by Denmark's Nationalbank, and Northern Rock, which had to be bailed out by the Bank of England last year, had fairly low deposit-to-loan ratios. Combined with large exposures in the property and construction sectors, this made them vulnerable. Norwegian banks generally have higher deposit-to-loan ratios, although there are differences. Banks and investors, both in Norway and abroad, are now charging higher premiums and higher prices for providing capital for acquisitions, restructuring and investment, and highly leveraged enterprises must pay high risk premiums when they borrow. It has become more difficult to obtain funding. Norges Bank’s survey of bank lending indicates that banks are gradually tightening their lending standards. Household debt growth has recently edged down. At the same time, consumption growth has slowed, but consumption is still higher than disposable income. Corporate credit growth remains high, at least for the time being.
In 1933, Section 14(g) was added to the Federal Reserve Act to empower the Board to prescribe specific regulations regarding a Federal Reserve Bank’s foreign relationships, and in that same year the Board issued Regulation N – Relations with Foreign Banks and Bankers – which specifically addresses the Board’s “special supervision” over this area that is required by the Act. As originally drafted in 1933, Regulation N required, among other things, the consent of the Board prior to entering into any negotiation or agreement with any “foreign bank or banker.” In 1941, Congress expanded the Reserve Banks’ 14(e) authority to include holding foreign accounts for institutions other than its own foreign correspondents and agencies; this was done by adding “foreign banks or bankers, or foreign states” to the account eligibility list. The Board subsequently amended Regulation N to cover relationships with “foreign states” as well. Overall, the regulation provides a basis for the Board’s role in 6/8  BIS central bankers' speeches  overseeing the New York Fed’s foreign official account activities. 8 Economic historians have cited several factors for this situation, including regulatory restrictions on foreign  branching by U.S. banks, prohibitions on U.S. banks from offering dollar trade financing, and until 1914 the absence of a central bank with market making authority. Inertia from the long-standing dominance of London banks and the pound sterling under the gold standard is also cited.

6  BIS central bankers’ speeches  Changes in market prices can, of course, affect the value of the collateral the Bank has taken in its operations. As a result, the Bank calls margin on any shortfall.8 In its sterling operations, the Bank calls margin daily and is moving to that standard for all other transactions. Limits The Bank also manages the risk on its balance sheet using concentration limits. Those serve two purposes. First, they help the Bank diversify across institutions – for example, counterparties can only bid for a maximum of 30% of the funds on offer in the Bank’s ILTRs. That helps ensure that any single counterparty doesn’t corner the market for reserves (intentionally or by accident). Second, they help diversify across instruments in the wider collateral pool – for example, the Bank requires that the adjusted market value (AMV) of securities that any single issuer delivers to the Bank as wider collateral in OMOs is less than the greater of £ million or 25% of its total OMO collateral delivered. Other recent policy initiatives The Bank has, for a number of years, been refining and improving its collateral policy. In November 2010, the Bank announced that it would allow counterparties to use “raw” (i.e. unsecuritised) loans as collateral in the DWF. By removing the need to securitise assets, that initiative expands the range of collateral that banks would be able to use in times of stress.
The only way to avoid that would have been to offer to lend to all banks at a rate that many others – in addition to  2  BIS Review 114/2007  Northern Rock – found attractive to pay. And to do that without drawing attention to Northern Rock’s take-up would have required a truly massive injection of cash into the banking system. That could happen only if there were no penalty rate or if conditions in money markets generally were difficult enough to make the penalty rate attractive to many banks over a prolonged period. Nothing would have been easier than for the Bank of England to lend freely without a penalty rate. Almost every actor in this drama saw advantage in cheap money and plenty of it. The role of the central bank is to ensure that the appropriate incentives are in place to discourage excessive risk-taking and the under-pricing of risk, and in so doing to avoid sowing the seeds of an even greater crisis in future. That we have done in each action we have taken – by maintaining the principle of the penalty rate. Some commentators have taken issue with these concerns about moral hazard, arguing, by analogy, that fire departments put out fires started by people who smoke in bed. I agree that we have fire services to do precisely that. And if a fire starts in the financial system, the central bank will put it out if it threatens to spread.

Capital account liberalisation led to entrust international financial markets with the “disciplining” function. When it became apparent that the discipline could often lead to abrupt capital flows reversal and crisis, the international community attempted to strengthen the IMF surveillance and develop its facilities so as to pre-empt such shocks and make them more manageable. That is, basically, where we are today. Everything must be done to ensure that IMF surveillance works. But, like any “disciplinary” approach, it meets with three essential difficulties: first, diverging interests between countries; second, enforcement problems (the IMF has naturally more leverage on countries that need its help than on others). Finally there is a perception of asymmetry in IMF surveillance; it may be compounded by a more fundamental and natural asymmetry between surplus and deficit countries, when it comes to implementing adjustment measures. And, some would say, there might also be a de facto asymmetry between reserve and non reserve currencies, although, as I shall mention later, the situation is more subtle. These difficulties were apparent during the last part of the 20th century. But what makes the “disciplinary” approach almost impracticable today are the changes that have occurred in the world at the turn of the 21st century. The world today stands in stark contrast with both the Bretton Woods era and the period that followed immediately:   The first – and most obvious – difference is the number of countries that are active participants to the system and have a stake in its functioning.