samchain/econo-pairs-v1 huggingface dataset:
SPEECH  Measuring the Natural Rate of Interest: Past, Present, and Future May 19, 2023 John C. Williams, President and Chief Executive Officer Remarks at the Thomas Laubach Research Conference, Board of Governors of the Federal Reserve System, Washington, DC As prepared for delivery  Thank you, Trevor. And good morning, everyone. It is a special privilege to participate in this conference honoring my dear friend, colleague, and co-author, Thomas Laubach. Many of you knew Thomas personally, and all of you knew him through his work. He was a brilliant economist, trusted colleague, and an inspiring leader. We miss Thomas' dedication, good cheer, and sense of humor, and his impact on everyone he touched endures. Our collaboration started in the fall of 2000 with a shared interest in figuring out how to measure the elusive natural rate of interest, otherwise known as r-star. At the time, neither of us had any idea that our research on this topic would continue for 20 years. Kathryn Holston and I are carrying on this work. It's one of the many ways we can honor Thomas and his memory. Because of the unprecedented, pandemic-related shocks to the economy, we paused our regular publication of r-star estimates in late 2020. This conference is the perfect venue to announce that we are resuming them. But first, I want to take some time to share r-star's origin story, which is how I came to know Thomas.

Third, the estimates of the natural level of output at the end of 2022 are much lower than predicted before the pandemic. The current HLW estimates of r-star in the United States are shown in Figure 3. For comparison, the figure also shows estimates using a version of the model that is not adjusted to take into account COVID or outliers and holds the parameter values fixed at estimates using data through the end of 2019. The two sets of estimates are very similar through 2019. They differ sharply during the acute period of the pandemic, however, when the estimates from the unmodified model exhibit large swings due to the presence of sizeable outliers. Interestingly, the two estimates are very close to each other at the end of the sample. That is, the modifications to the model do not interfere with "letting the data speak." A Modest Imprint Based on the new r-star estimates for Canada, the Euro Area, and the United States, we see no signs of a significant reversal of the decline in r-star estimates evident in prior decades.13 In fact, in all three economies, the r-star estimates in 2022 are within twotenths of a percentage point of the corresponding estimate in 2019. The largest differences between model estimates pre- and post-pandemic relate to the level of each economy's potential output. Figure 4 compares the model's measure of the natural level of output based on estimates using data through the fourth quarter of 2019 (the blue line) to current estimates.
I consider that this provides better guidance with regard to the scope of monetary policy. Equilibrium unemployment is influenced by how well the match between jobseekers and job vacancies works. Factors influencing the conditions for this matching include the composition of the labour supply, which, in turn, may be partially affected by changes in the population structure. For example, an increase in the percentage of young and inexperienced people in the labour market can contribute to a deterioration in the matching of job seekers to vacancies. This is because matching seems to work less efficiently for young people, in comparison with unemployed people of other ages. Young people thus have higher unemployment than older people. Another group that tends to have a higher average rate of unemployment consists of those born abroad. A report by Statistics Sweden (2010) shows that the degree of employment among those born abroad amounts to 58 per cent in Swedish metropolitan regions, which can be compared with 82 per cent for those born in Sweden.11 However, there are substantial differences between the different groups born abroad. The employment rate is lowest for those born outside of Europe, and lower for those born outside of the Nordic region than for those born in the Nordic countries. It also appears to take a long time before immigrants from other countries manage to enter the Swedish labour market.

But I do not consider that there is a single measure that can or should be held up as the only measure that we should adjust monetary policy to. At least as important as the various estimated gap measures are survey-based measures of resource utilisation such as capacity utilisation in the manufacturing industry and labour market shortages, as well as indicators from the traditional labour market statistics. The labour supply holds a central position among these indicators. At this point, I would like to point out that it is important to not just see the labour supply as a homogenous aggregate. Equilibrium unemployment is influenced by how well the match between jobseekers and job vacancies works. And the conditions for this matching are influenced by factors such as the composition of the labour supply, which, in turn, may partly be due to changes in the population structure. I will return to this point later on. The central message of my speech here today can be summarised as follows: to reduce the risk of going seriously wrong with monetary policy, I consider it important not to place any blind faith in the exactness of the gap measures we use, be this the unemployment gap or any other measure. So I have nothing against the fact that we use different measures; rather, I am concerned about how we use them. Let me now discuss the problem of calculating the unemployment gap, which, as I was saying, is produced by comparing actual unemployment with equilibrium unemployment.
The quota have also been doubled to THB 3,000 million for next year. I am confident that the subsequent sessions in this two-day forum will offer you a clear picture on the opportunities and prospects this region has to offer. While the private sector works hard to “Move Up”, “Move Out” and “Move In”, the focus of the public sector is on infrastructure, both physical and intangible, to raise the competitiveness of the economy, elevate its workforce capability and enhance its return on capital. Recognizing the short lived, though timely, nature of consumption-led stimulus, the government is embarking on a major infrastructure investments in logistics, communication, water management and transportation. A strong and efficient logistic system will significantly help reduce transportation and logistic costs which are major impediments to our longer term growth. These projects will help unlock the bottleneck and raise overall competitiveness as well as crowd in private investments. Infrastructural projects will also strengthen Thailand’s position as a hub for our Greater Mekong Sub-region (GMS) neighbors, and is expected to accelerate the integration of these economies as we approach the 2015 ASEAN Economic Community. Projects such as the North-South and East-West corridors will further facilitate integration as well as efficiency of transportation and logistics in the region. As the Western economies progress in the recovery from the global financial crisis, we in Asia should step up our preparations to avail ourselves of the benefits once the global economy is back on its track.

Foreign investors have an important role to play in ensuring that Thailand press ahead with these reform efforts. As the voice of reason and conscience, foreign analysts, credit rating agencies and fund managers have not hesitated to let us know whenever we seem to be slipping in our reform path or policy inconsistency! Concluding remark To conclude, these are exciting times for all of us. In the wake of the great unwinding, as public agencies, the Bank of Thailand can undertake the necessary monetary and financial policies to stabilize the market and attenuate the effects of short-term volatility or market fickleness. But the task for long-term development lies with everyone. All of us have a role to build the road to sustainable growth, for the country and the region. I thank the Stock Exchange of Thailand and co-hosts for this occasion to bring together investors and government agencies to renew our focus on investments and opportunities for the future. Thank you for your attention. 4  BIS central bankers’ speeches
If one is to ensure that the financial system has adequate resilience to shocks, one must have requirements for sufficient capital and sufficient buffers rather than using the policy rate. Confusing the policy areas risks leading to a poorer outcome for both, and making it more difficult to hold the Riksbank accountable. Conflict between price stability and financial stability in the wake of the financial crisis The global financial crisis was the biggest economic crisis since the 1930s Depression. Central banks around the world therefore implemented powerful measures in the form of large interest rate cuts and large-scale asset purchases to safeguard the inflation target and mitigate the economic consequences of the financial crisis. At the beginning of the crisis, expansionary monetary policy did not entail any conflict between price stability and financial stability. Inflation was under control, demand was weak and the financial system was severely weakened. Monetary policy could contribute to both increasing demand and strengthening the financial system. Monetary policy remained expansionary even after the acute phase of the crisis was over. Central banks in many countries held their key interest rates at low levels for a long time and also made large-scale asset purchases.

Otherwise you might rationally expect to end up among the small minority that does not expand and at the same time still have the tighter monetary policy that results from everyone else expanding. This is the classic “prisoner’s dilemma” from game theory. The conclusion is that it is necessary to have rules for fiscal policy that limit deficits and debt when monetary policy is united and fiscal policy divided, and that these rules need to be followed in a credible fashion. But, in addition, the conclusion is also that the temptation to over-expand is as strong during an upturn as during a downturn. In fact this is what we have seen in the euro area during the heyday of the late 1990s and the beginning of the 21st century – a much too expansionary fiscal stance in some euro area countries, especially in good times, which led to tighter monetary policy by the ECB and thus an incentive for others to further weaken fiscal discipline. When the downturn eventually came, the euro area entered this phase with large deficits instead of surpluses. What the Pact then required, a 180-degree turnaround in fiscal policy to a tighter stance, reinforced the downturn and was considered by some as stupid. In fact it was the lack of savings  BIS Review 88/2006  1  during the boom that was stupid. Thus, rules would be needed not only for a maximum deficit in a downturn, but equally some forceful rule for fiscal rectitude in good times.
Transparency is assured by the publication of detailed minutes of our monthly meetings just two weeks after the event, and by the publication of our quarterly inflation report. These publications, and the continuous stream of speeches and interviews all around the country by members of the MPC, ensure broad accountability to the public at large. We see this as very much in our own interest, as monetary policy is likely to be more readily accepted - and more effective - if people generally understand what it is we are doing and why. But, beyond this, we publish each individual MPC member's voting decision each month - which they can then be expected to explain. Our procedures (though not our decisions) are regularly reviewed by the Bank's Court of Directors, and reported on to Parliament through the Bank's Annual Report. We regularly appear before the Treasury Select Committee of the House of Commons and the Economic Affairs Committee of the House of Lords. And, as Chairman of the MPC, I am required to write an open letter to the Chancellor if inflation strays by more than 1% either side of the 2½% target,  2  BIS Review 23/2002  explaining why inflation was adrift, how long the divergence might last, and the action we propose to take to bring it back on course. So far as I am aware, taken as a whole, these arrangements provide far greater transparency of, and greater accountability for, the monetary policy process than anywhere else in the world.

And the rate of unemployment fell from a peak of over 10½% on the LFS measure to around 5% last summer; on the claimant count measure it fell from some 10% to just over 3%, which meant that the number of people claiming unemployment benefit, at under 950,000, was the lowest for 26 years. Short-term interest rates are at a 38-year low. All of that it seems to me gives the lie to a view that was quite widespread a decade ago, that sustained low inflation would inevitably mean continuous suppression of the real economy. I'd go further myself and suggest that it provides considerable positive support for the central bankers' credo. Now some of you - given what's been happening to your own businesses, to certain particular business sectors, and in regions of the country where those sectors are particularly heavily concentrated - may think that I've been living on a different planet. The problem is - and it is a real problem - that with the best will in the world macro-economic stability, the stability of the economy as a whole, cannot guarantee stability at the more micro-economic level: it can not guarantee the prosperity of every individual business or even of whole business sectors or geographic regions.
If there is indeed a wealth effect that spreads from clever market operators to the working people of America, a $ trillion balance sheet might well have been sufficient to have performed the trick. The FOMC is a committee, however, and the majority of my colleagues have disagreed with me on this point. We have since doubled our balance sheet to $ trillion. This has resulted not only in saltatory4 housing, bond and stock markets, but a real economy that is on the mend, with cyclical unemployment declining and inflation thus far held at bay. 3  Liquidity swaps continued to fall after March, hitting zero in February 2010. 4  Merriam-Webster’s dictionary defines saltatory as “of or relating to dancing; proceeding by leaps”. 4  BIS central bankers’ speeches  Here is the rub. We have accomplished the last $ trillion of balance-sheet expansion by purchasing unprecedented amounts of longer-maturity assets: As of Jan. 8, 2014, 75 percent of Federal Reserve-held loans and securities had remaining maturities in excess of five years. A narrow needle eye The brow begins to furrow. To be sure, Treasury and MBS markets are liquid markets. But the old market operator in me is conscious that we hold nearly 40 percent of outstanding eligible MBS and of Treasuries with more than five years to maturity. Selling that concentrated an amount of even the most presumably liquid assets would be a heck of lot more complicated than accumulating it. Currently, this is not an issue.

The “slow correction” of 1962 comes to mind as an example: A stock market correction took place, and yet the economy continued to fare well. Here is the point as to the market’s beer goggles. Were a stock market correction to ensue while I have the vote, I would not flinch from supporting continued reductions in the size of our asset purchases as long as the real economy is growing, cyclical unemployment is declining and demand-driven deflation remains a small tail risk; I would vote for continued reductions in our asset purchases, with an eye toward eliminating them entirely at the earliest practicable date. How large is the camel? Let’s turn to the camel, by which I mean the size of the Fed’s balance sheet. A little history provides some perspective. We began to grow our balance sheet as we approached year-end 2008. On Sept. 10, 2008, the amount of Reserve Bank credit outstanding was $ billion. On Nov. 25, 2008, we announced a program to purchase $ billion of securities issued by the housing-related government-sponsored enterprises, together with our intent to purchase up to $ billion in MBS in order to goose the housing market. I supported these initiatives, recognizing that the economy was in the throes of a financial panic.
9  The effective loan rate on mortgages is 3.5% and on business loans 2.9%, compared to CPI inflation of 3.1% at present. In the early stages of the 1990s recovery, bank base rates fell to 5.25% in early 1994 but rose to over 6% at the end of the year. Typical loan rates would be 1-2% above this level. 8  BIS Review 134/2010  I believe it is an open question on how serious a constraint the financial sector will prove to be on the recovery. But there has been some recent encouraging evidence. Over the last few quarters, the Bank’s regular surveys have been pointing to an easing of credit conditions. And the CBI’s quarterly Industrial Trends Survey has showed a sharp fall back in the proportion of companies citing access to external finance as a constraint on output, exports and investment. As Chart 9 show, these indicators have returned to around pre-crisis levels from the very elevated and unprecedented levels we saw at the peak of financial crisis in late 2008 and early 2009. BIS Review 134/2010  9  The importance of the supply side All these factors – the global economy, the impact of fiscal tightening and the effects of the continued adjustment in the financial sector – will have a bearing on the growth of the UK economy through the recovery and hence on monetary policy. But there is another element which is crucial to the progress of the recovery which we need to acknowledge.

Inflation has been above target, not below it – and is expected to remain so for some time. Because of these changes in economic conditions, I have voted for a rise in interest rates at recent MPC meetings – as a start to a gradual movement away from the exceptional level of monetary stimulus put in place to combat very difficult economic conditions last year. And I continue to believe that this the right policy for the situation the UK economy currently faces. In the years ahead, we will see much tighter restraint of public spending as the large deficit which built up over the recession is reined in. That process of deficit reduction is necessary to ensure longer term confidence in the future stability of the economy in financial markets and more generally. In this environment, it is the private sector which will be the engine of growth for the UK economy – just as it was in the 1990s recovery and the previous recoveries we have experienced here in the UK. Confidence that inflation is being kept under control is a key factor in sustaining that private sector engine of growth. My view remains that we should be starting now to make a gradual adjustment of monetary policy.
At the end of 2022, the COVID-adjusted level of potential output (the black line) is 4.2 percent below the pre-pandemic projection for the fourth quarter of 2022, with nearly half of that shortfall explained by the COVID shock measure and the remainder a permanent change in the natural level of output (the gold line). In summary, according to the model estimates, the main longer-term consequence from the pandemic period is a reduction in potential output, but the imprint on r-star appears to be relatively modest. Importantly, there is no evidence that the era of very low natural rates of interest has ended. The Future of R-star? These estimates indicate that r-star today is about where it was before the pandemic. But where is it headed in the future? Of course, this is impossible to know with any certainty. One way to gauge how forecasters perceive the future of r-star is to use forecast data to estimate it. Figure 5 shows the HLW-based estimates of r-star in the U.S. through the end of 2024. It uses published data in the first quarter of 2023. The May 2023 Blue Chip forecasts for inflation, GDP, and interest rates are used as proxies for data from the second quarter of 2023 through the fourth quarter of 2024. The resulting estimate of r-star is about ½ percent in the first quarter of 2023, and subsequently falls to slightly below zero. Evidently, the value of r-star implied by private forecasts is, if anything, even lower than today's estimate.

SPEECH  Measuring the Natural Rate of Interest: Past, Present, and Future May 19, 2023 John C. Williams, President and Chief Executive Officer Remarks at the Thomas Laubach Research Conference, Board of Governors of the Federal Reserve System, Washington, DC As prepared for delivery  Thank you, Trevor. And good morning, everyone. It is a special privilege to participate in this conference honoring my dear friend, colleague, and co-author, Thomas Laubach. Many of you knew Thomas personally, and all of you knew him through his work. He was a brilliant economist, trusted colleague, and an inspiring leader. We miss Thomas' dedication, good cheer, and sense of humor, and his impact on everyone he touched endures. Our collaboration started in the fall of 2000 with a shared interest in figuring out how to measure the elusive natural rate of interest, otherwise known as r-star. At the time, neither of us had any idea that our research on this topic would continue for 20 years. Kathryn Holston and I are carrying on this work. It's one of the many ways we can honor Thomas and his memory. Because of the unprecedented, pandemic-related shocks to the economy, we paused our regular publication of r-star estimates in late 2020. This conference is the perfect venue to announce that we are resuming them. But first, I want to take some time to share r-star's origin story, which is how I came to know Thomas.