samchain/econo-pairs-v1 huggingface dataset:
Consequently the two instruments are imperfect substitutes in terms of their effects on the economy. We shall illustrate this by comparing the impact on the economy of a variety of shocks when only monetary policy is available with the outcomes when the macro-prudential instrument is also available. In each case, policy is set optimally. We assume a quadratic social loss function, which penalises the variance of inflation, output and the physical capital stock about their efficient frictionless levels. Other than the appearance of physical capital, this objective function is standard. Edge (2003) shows that such a term appears when capital accumulation is incorporated into the sticky-price New Keynesian framework and the objective function is derived from first principles (along with a number of other terms, which for simplicity are omitted here), though, with all investment funded through the banking system, we interpret it as capturing financial stability concerns more broadly. We assume a weight of unity on the variance of inflation and weights of 0.01 on the variances of output gap and the capital gap; that is broadly consistent with extant calibrated models in which the objective function is derived from first principles. Since expectations of future inflation, rates of profit, etc., matter in the model, it is valuable for policymakers to be able to commit to future actions so as to influence those expectations, just as in the canonical New Keynesian framework. In the first set of simulations, we assume a single policy maker who can commit (this simplifies solving the model).

A perceived comparative advantage of the United States in creating “high quality” financial assets from real investments may also have played a part (Caballero, Farhi and Gourinchas, 2008). This resulted in downward pressure on the yields on government bonds and other safe assets, and upward pressure on asset prices generally. Low long-term safe interest rates would also have encouraged the shift into riskier assets through the risk-taking channel described above. Second, the lead-up to the crisis was also a long period of steady growth coupled with low and stable inflation (the Great Moderation). 2 Households, businesses and market participants were consequently faced with a complex signal-extraction problem: how much of this reduction in economic volatility was permanent? Whereas many economic signal extraction problems involve learning about the first moments of a distribution, this involves making inferences about higher moments. The longer such a period of low volatility lasts, the more reasonable it is to assume that it is permanent. But given the necessary infrequency with which tail events occur, there may be a natural tendency for people erroneously to conclude that they could never happen simply because none have materialised recently. Certainly market measures of uncertainty are consistent with this idea, as measures of volatility implied from options prices (such as the VIX) suggest that the perceived risks in financial markets had shrunk to extremely low levels by 2006.
Let us assume that the oil price temporarily increased by NOK 10 per barrel, or a little less than USD 1.50 per barrel. This is a small change in oil prices, well within normal variations from one year to the next. Central government revenues - and thus the budget surplus - would then increase by about NOK 8 billion the first year and NOK 10-11 billion the following year, which is equivalent to nearly 1% of Norway’s annual GDP. If the higher revenues are used in the economy through higher expenditure or reduced taxes in the central government budget, aggregate domestic demand will be affected. Higher expenditure requires an increase in the public sector’s use of real resources, primarily labour. One per cent of GDP is then a substantial figure. If the increase in oil revenues is used domestically in this way, it would correspond to nearly half of the annual growth in the mainland economy in a normal year. If the private sector of the economy is also expanding, and the economy is already close to capacity limits, this policy will swiftly lead to strong pressures on resources in the economy. This will result in a rise in wages and prices. This policy would also lead to unstable conditions in the foreign exchange market.

I would like to emphasise, however, that calculations of this sort are uncertain. Chart 7 Probability distribution for NOK/EUR in one month  On the basis of the prices for various currency options, we can calculate the implied probability distribution for the krone exchange rate. In simple terms, one can say that the further to the left in the diagram the figure is, the higher a future appreciation of the krone is priced. A narrow, symmetric curve - or a bell - indicates that the uncertainty surrounding the future krone exchange rate is considered to be relatively slight, and that the risk of a depreciation or appreciation is priced  BIS Review 67/2000  8  symmetrically. The chart shows that the implied probability distribution for the krone has changed over time. Uncertainty surrounding the future krone exchange rate appears to have diminished. Chart 8 Probability distribution for USD/EUR in one month  The corresponding bell for the exchange rate between the euro and the US dollar indicates that there is considerable uncertainty surrounding the future exchange rate between the two currencies. Since autumn 1999 this uncertainty has mounted, while at the same time the euro is expected to fall against the US dollar. Chart 9 GDP mainland Norway Projections for 2000 from Inflation Reports December 1998 to June 2000  The assessment of the economic outlook has changed over the past 18 months.
As the world progresses toward increasingly integrated financial and goods markets, other things being equal, we would expect to see an increase in the number of countries with surpluses or deficits, and larger surpluses and deficits, as flows of both assets and goods work to equalize desired saving and investment around the world. If we were confident that the imbalances we observe simply reflected a more efficient allocation of the world’s stock of saving to its most productive uses, if relative prices adjusted freely in response to changing fundamentals, and if economies were flexible and agile in adapting to those changes, then we might also reasonably expect these imbalances to rise and fall through smooth and gradual adjustments in relative prices and flows of goods and services. Of course, this is not quite the world we live in today. The fact that we’re discussing the issue of the sustainability at all reflects concern that the pattern of global capital flows we see today in unlikely to be consistent with the likely evolution of economic fundamentals over time. This suggests that it is worth focusing attention on the sustainability of the forces behind these capital flows rather than simply concluding from the favorable assessment of underlying risk and return in today’s financial prices that these imbalances can persist for a protracted period of time.

This fact alone suggests that something will have to give eventually, and this raises the interesting question of how these imbalances have persisted on a path that seems unsustainable with so little evidence of rising risk premia. Part of the answer seems to lie in the fact that these capital inflows into the United States, however, are not solely the result of the decisions of private actors, but reflect official intervention by countries with exchange rate regimes tied to the dollar, including those in Asia and the major oil exporters. Research at the Federal Reserve and outside suggests the scale of foreign official accumulation of U.S. assets has put downward pressure on U.S. interest rates, with estimates of the effect ranging from small to quite significant. If this is right, the apparent reduction in real rates is less likely to signal concern over expectations of future growth and future returns on investment, and is more likely to signal the special consequences of these exchange rate arrangements and their effects on private behavior, as well as the increase in international capital mobility. What then can we say about the implications of the pattern of imbalances we see today? 2  BIS Review 3/2006  The trajectory of the U.S. current account deficit has led most observers to conclude the U.S. external imbalance is unsustainably large and will have to come down over time.
Since then, the unemployment rate has fallen by a little less than 1 percentage point each year, and wage growth has picked up by 0.2 percentage points each year. Three quarters into 2014, wage growth is already up another two-tenths, to 2.1 percent at an annual rate. This pattern of rising wage growth is roughly what one would have expected judging by prerecession data. 3 If anything, wage growth has been running a bit above what we should have expected. This contradicts the view that the unemployment rate has understated labormarket slack. Of course, the Federal Reserve has a target for price inflation, not wage inflation. The rate of wage inflation consistent with our 2 percent price-inflation target depends on secular trends in labor productivity growth and in labor’s bargaining power – trends over which the Federal Reserve has no control and about which it can only make informed guesses. Nevertheless, the Dallas Fed’s study of the Phillips curve has an important lesson for Fed policymakers: If we keep pushing on the accelerator pedal until wage growth matches the rate that we believe to be sustainable, we will likely have pushed too far and missed our exit. Because wage growth reacts to slack with a lag, it will continue to increase even after policy stimulus is removed. Because wage growth rises at an increasing rate the farther the unemployment rate declines, the overshoot is likely to be large. I liken monetary policy to duck hunting.

We at the Dallas Fed have investigated the links between wage inflation and the unemployment rate using the aggregate data that are available for the U.S., and also using state-level data. These investigations have led us to three main conclusions. First, wage growth responds to the unemployment rate with a lag. That’s no mystery: Many employers adjust wage and salaries just once each year. Second, wage growth becomes increasingly sensitive to the unemployment rate as the unemployment rate reaches lower and lower levels. A drop in the unemployment rate from 9 percent to 8 percent may not do much for the negotiating leverage of the typical worker. But the story is different when the unemployment rate drops from 6 percent to 5 percent or below, for example. Finally, taking these two factors into account, there’s been nothing at all unusual about the behavior of wage growth over the period since the national unemployment rate peaked nearly five years ago. We went through a deep recession. Coming out of a deep recession, it takes time for the unemployment rate to reach levels where wage growth picks up noticeably. Wage growth was about 1½ percent in both 2010 and 2011 – not too surprising, given that the unemployment rate was 9.9 percent in the final quarter of 2009 and, at 9.6 percent, nearly as high in the final quarter of 2010.
Lessons from the crisis The high equity share, the capacity to increase the risk level in certain periods and the need for diversification are derived from the Fund’s characteristics. Let me now review some of the lessons from the financial crisis that have also shaped the development of the Fund’s strategy. These changes are closer to the centre of the European debt crisis. The risk tolerance of the Fund is to a large degree defined by the strategic equity share, which, as I mentioned, is 60 per cent. Since the Fund is heavily exposed to risk by virtue of its relatively high equity share, the function of government bonds is in essence to reduce the overall volatility of the portfolio. From this perspective, the most important role for government bonds is to hedge the equity portfolio. The hedge is best achieved by holding liquid government bonds with high credit quality. Typically, this entails an overweight of the safest, low-yield government bonds. Conversely, high-yield government bonds are more volatile, and thus they do not serve the overall purpose as a hedge in a global portfolio. 4  BIS central bankers’ speeches  Slide 14: Fixed income: new benchmark The Fund’s benchmark index for bonds is divided into 70 percent public and 30 percent corporate debt. Previously, the allocation in the bond portfolio was based on market weights, and thus the portfolio was allocated in proportion to volume of the sovereign debt issued by each country.

Measured in these terms, the deficit was three times larger than that of Italy and Spain last year. Policy had to be reversed and tightened. Many Norwegians saw a decline in real incomes. 1  David Landes (1998): The Wealth and Poverty of Nations, W.W. Norton & Company, Inc., N.Y  BIS central bankers’ speeches  1  Slide 4: Output gap: A boom-bust economy In the early 1980s, the Norwegian economy experienced a new boom, this time fuelled by debt. When oil prices fell in 1986, the Norwegian economy was hit again. We experienced a collapse in house prices, a severe banking crisis, a currency crisis, a fiscal crisis and high inflation. Unemployment soared. Large parts of the banking system were eventually nationalised. In the two years period after summer 1987, GDP fell by almost 5 percent. During the 1980s, Norwegian GDP per capita grew by a mere 1.2 percent annually, less than half of the growth recorded in both the preceding and following decades. By the early 1990s, the Norwegian authorities realised that the old policy framework was unsuitable for a modernised economy, with deregulated credit and capital markets. The low growth performance and volatility of the recent past was to be replaced by stability, predictability and renewed growth.
This high level of saving explains why last year’s current account surplus was so large even though investment had returned to its historical average. Underpinning it is increased saving by households, businesses, and the public sector, which in turn stems from several factors: increased caution following the experience of the financial crisis; an improved public sector outcome; the housing market situation, where more capital is required for a first home purchase; and the level of interest rates. A higher level of saving reduces excess demand in the economy. The fifth factor is the success of monetary policy in the recent term. This can be seen in short- and long-term inflation expectations, which have been at target since mid-2016. In addition, expectations appear more firmly anchored to the target than before, which shows in the fact that exchange rate volatility and unexpected changes in inflation have less impact than they did in the past. The inflation target has therefore gained credibility. As a result, it takes more to move inflation away from the target than in the past, and inflation can be kept at target over the medium term with lower interest rates than was previously possible. By the same token, the possibilities for monetary policy to mitigate fluctuations in economic activity without jeopardising the inflation target are greater. 2  What is the current situation, in light of these explanations? In some respects, the current situation is similar to that a year ago.

But as markets attained a global dimension, encouraged by financial liberalisation and the advance of information technology, they became far less tolerant of weaknesses than before, and the markets responded to weaknesses with harsh punishments, which many considered grossly unfair. But this is the reality that we face. And if we are to continue to benefit from the greatly enhanced efficiency of global financial markets in international financial intermediation - a process that has contributed so much to development - we have to get on with the necessary reforms. These include the domestic structural reforms to the financial and corporate sectors, to make sure that we can manage the risks and cope with the volatility that are part of that efficiency. And, to the extent that consensus can be reached, they also include measures to strengthen the international financial architecture. Thus, with some encouragement from the Bank and from others, and more importantly, urged on by the brute forces of the market, significant progress has been made in the domestic structural reforms of individual economies in the region. I applaud the progress and the achievements; and I sympathise with the pain and suffering which they have entailed. With the economic recovery of the region now well under way and international funds flowing back into the region, I would also urge a continued commitment to structural reforms and caution against complacency.
As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.1 The Federal Reserve’s employment objective can be viewed both narrowly and broadly. Narrowly, we focus on the degree of slack or tightness in the labor market. This leads to discussion of many measures of the labor market such as the unemployment rate, the participation rate and the growth of wages. Broadly, the economy’s potential growth rate depends on effectively investing in and taking advantage of all of the resources in the economy – in particular, we need to achieve the full potential of the human capital of all Americans. For the United States to reach its maximum economic potential, all Americans must have the opportunity to reach their potential. The United States has always prided itself on being “the land of opportunity.” Parents hope that their children can achieve more than they did. Over the course of our history, immigrants have journeyed to America in search of a better life, a chance to live the “American Dream.” What defines the American Dream?

Importantly, Chetty finds even more significant variation in intergenerational mobility across different metro and rural areas within the United States.4 While some regions in the U.S. match the highest mobility levels among developed countries, others persistently offer less mobility than in most other developed countries. Relative income mobility is highest in the Mountain West and the rural Midwest and lowest in the Southeast. Now these differences could be caused by the experience of living in different neighborhoods, but they may also simply reflect differences in the people living in these neighborhoods. In an effort to distinguish between these two possible explanations, Chetty and fellow economists study children from families who changed their neighborhood during childhood and provide evidence that much of the variation in upward mobility reflects the experience of living in particular neighborhoods. Their findings imply that upward mobility depends strongly on where you grow up as a child. This research indicates that it is the places themselves, rather than the families who live there, that affect the outcomes for children. An important question is what specific features of neighborhoods are associated with greater upward mobility. Chetty and co-authors find that higher upward mobility is associated with areas that are less residentially segregated by race or income, have lower income inequality (i.e. a bigger middle class), higher quality schools,5 stronger social networks, higher community involvement and stable family structures. The finding that intergenerational mobility is primarily a local problem has two broad policy implications.
This position is unique, at the very least for two reasons: The first reason is that Bulgaria is the only country in the European Union, which is a member of the European Banking Union, a key institution of the euro area, but it is not a member of the euro area itself. The second reason is that Bulgaria is one of the two countries in the European Union, together with Denmark, whose currency has joined the European Exchange Rate Mechanism, which many observers describe as the euro area "waiting room". The preparedness of the Central Bank and of the banking sector to operate under the conditions of the euro area, as well as the stability of the exchange rate are actually two of the most important requirements for a country to enter the euro area. These requirements, in the case of Bulgaria, have already been met. As you know, in 2020 Bulgaria become a full member of the European Banking Union. Ever since our currency has been part of the European Exchange Rate Mechanism. By virtue of our membership in the European Banking Union and in its key mechanisms, the Single Supervisory Mechanism and the Single Resolution Mechanism, the Bulgarian National Bank takes part in making the most important decisions related to the supervision and resolution of the banks in the euro area, plus of course the banks in Bulgaria.

Norman T L Chan: Strengthening risk management of banks in Hong Kong Statement by Mr Norman T L Chan, Chief Executive of the Hong Kong Monetary Authority, to the media, Hong Kong, 19 May 2017. * * * In view of the increasing risk of overheating in the property market, I would like to announce that the Hong Kong Monetary Authority (HKMA) has decided to introduce three new counter-cyclical prudential measures today to strengthen the risk management of banks. 2. The first measure requires those banks using Internal Ratings-Based Approach to  calculate capital charges for credit risk to raise the risk weight floor by 10 percentage points from the existing level of 15% to 25% for new residential mortgage loans. 3. The second measure requires banks to lower the applicable loan-to-value ratio (LTV) cap by 10 percentage points for mortgage loans extended to applicants with one or more pre-existing mortgages. 4. The third measure requires banks to lower the applicable debt servicing ratio (DSR) limits by 10 percentage points for mortgage loans extended to applicants whose income is mainly derived from outside of Hong Kong. 5. These three measures take immediate effect. However, mortgage applications for transactions with provisional sale and purchase agreements signed today or earlier will not be affected. 6. Finally, I would like to remind the public that, for most people, buying a property is not only one of the most important decisions in life, it is also a financial transaction entailing significant leverage through borrowing.