samchain/econo-pairs-v1 huggingface dataset:
During 2013, consumer spending increased by 2.2%, while housing investment – which includes both the construction of new dwellings and the value added in the facilitation of housing transactions – rose by almost 10%. Together, these two factors accounted for around two thirds of the rise in activity, though note that is in line with their overall share in GDP. This pickup in household spending has not so far been driven in the main by faster growth in incomes: real household income after tax rose by just 1% in the year to 2013 Q3. Press reports sometimes characterise the rise in spending as being fuelled by borrowing and so destined to end in tears. This is not really the case. It is true that unsecured lending growth has picked up over the past year, but the pace of growth is still well below the levels prevailing during the pre-crisis period. And while there has been an expansion in gross mortgage lending accompanying higher housing activity, there is little sign that this has been used to release housing equity in order to finance higher consumer spending. The rise in spending has, though, been associated with a reduction in the fraction of income that is saved. This rose sharply in the aftermath of the collapse of Lehman Brothers as households responded to the increased uncertainty about income and job prospects by building up extra savings, or reducing their debts, as a precaution.

The slack appears to be concentrated largely in the labour market, as survey measures indicate that businesses are operating at close to normal capacity (Chart 7). Broadly speaking, we will be aiming to absorb that slack over the next two to three years, while keeping inflation close to the 2% target. Of course, output can rise by more than 1–1½% before slack is eliminated because supply generally rises over time as well as demand. The extent and pace of any rebound in productivity will consequently be crucial in deciding how quickly slack gets absorbed. In our latest projections (Charts 8 and 9), conditioned on prevailing market interest rates, the central path for inflation remains close to the target throughout, while the margin of slack is diminished, though not quite eliminated, by the time the forecast horizon is reached. That market curve implies a first rise in Bank Rate in the spring of 2015, though I should stress that we are likely to learn a lot between now and then about the pace of the recovery, the amount of slack and the evolution of supply, and the impact on costs and prices. So I would counsel against getting too hung up about the precise date at which Bank Rate first rises.
B. Lee (2011), “Time-varying rare disaster risk and stock returns”, Journal of Financial Economics 101 (2). 4  These include demographics, inequality, lower public investment, saving in emerging markets, higher credit spreads, cheaper capital goods, and lower trend growth. See Rachel, L and Smith, T (2015), “Secular drivers of the global real interest rate”, Bank of England Staff Working Paper. 2  BIS central bankers’ speeches  automation of jobs and of trade for their location; and the consequences of bigger, more global markets for “winner takes all” patterns of compensation. These secular trends can be reinforced by more cyclical moves (Chart 2).5 Cyclical economic uncertainty spiked during the crisis, remained very subdued until last autumn, and has since been on the rise. The last of the uncertainty trinity is policy uncertainty.6 It is reduced when there are clear policy remits, frameworks, and institutional structures that empower and discipline fiscal, monetary and regulatory authorities. It is elevated when these are absent. And it is influenced by the effectiveness of the tools available to central banks, the clarity of their policy strategies and, crucially, the transparency of their communications. Chart 2 UK economic uncertainty spiked after the failure of Lehman Brothers  Source: Bank calculations and Haddow et al (ibid.). Shows data to end-May. In recent years, policy uncertainty has increased globally. In some jurisdictions, fiscal frameworks have been questioned; in others, exchange rate regimes. And with very low interest rates and expanding unconventional policies, the efficacy of monetary policy itself has been questioned.

If anything, the importance of the Bank’s independence, which is already enshrined in Maltese law and has been duly respected by successive governments, will be even greater once the Bank becomes a member of the Eurosystem. First of all, the autonomy of national central banks is mandated by the Maastricht Treaty. Reflecting this requirement, the Central Bank of Malta Act now fully guarantees the institutional, functional, financial and personal independence of the Bank and of the members of its decision-making bodies. As for the ECB, it has adopted low inflation as its overriding objective, and its independence helps to guarantee its ability to deliver on this commitment. As I said earlier, the governors who sit on the Governing Council of the ECB do so in a personal capacity and must be guided only by euro-area wide considerations. As members of this Council, therefore, governors of national central banks must not only be persons of recognized professional competence and personal integrity, but they must also be prepared to defend their own bank’s as well as the ECB’s ability to act independently of political and other pressures. 4  BIS Review 59/2007
Moreover, excessive intervention might complicate the extraction of information from movements in market interest rates, especially at the maturity at which the ESCB would intervene. Intensive recourse to fine-tuning operations might also deprive regular refinancing operations and standing facilities of their signalling effect and be conducive to a centralisation of monetary policy operations;  •  provided they are set at a sufficient level, and include an averaging provision, reserve requirements constitute an efficient buffer against liquidity shocks ; this would help stabilize short-term interest rates over the maintenance period. In turn, setting a fairly high level of minimum reserves might require remunerating them in order not to induce significant delocation or disintermediation;  7 See the two EMI reports “The single monetary policy in Stage Three – Specification of the operational framework”, January 1997, and “The single monetary policy in Stage Three – General documentation on ESCB monetary policy instruments and procedures”, September 1997. BIS Review 112/1997  -7-  •  enhancing the signalling effect of the main refinancing operations should also contribute to lowering interest rate volatility. This may best be achieved through the normal conduct of fixed-rate tenders, which send clear signals to the market, rather than variable-rate tenders. The latter may nevertheless be useful in certain circumstances where the ESCB wishes to gauge market sentiment;  •  finally, the communication policy of the ESCB could also play a role in smoothing interest rate volatility. The ESCB will have to publish weekly a consolidated balance sheet.

There are however alternative monetary policy strategies that automatically generate similar dynamics to those of the forward guidance described above. These are the so-called makeup strategies,10 one of which is price-level targeting. In this case, the central bank announces a target growth rate for the price level (for example, of 2%). Unlike in the case of inflation targeting, if for some reason inflation stands temporarily below 2%, the central bank will have to ensure that it rises above 2% in the future in order to ensure that the price level returns to its target path. In a way, this strategy obliges the central bank to correct in future any past deviation of inflation consistent with its medium-term target. 10  See Chapter 3, 2018 Annual Report, Banco de España, for a detailed discussion of these make-up strategies. 14  A less radical strategy, albeit similar in spirit, is known as average inflation targeting”. In this case, the central bank attempts to keep average inflation at its target level over a certain timeframe. Unlike traditional inflation targeting, it includes an element of compensation for past deviations, although this is limited in time. Under price level targeting, in contrast, all past deviations must be compensated, irrespective of the time that has elapsed since they occurred.
The theory usually assumes that one single person determines the policy rate – despite the fact that it is now fairly rare for this to be the case in practice. The loss  BIS central bankers’ speeches  7  function I mentioned earlier then reflects this single policymaker’s view of how monetary policy should be conducted. In the cases where the theory acknowledges that there may be several different monetary policymakers, it is often also assumed that the only thing that distinguishes them from one another is that they have different preferences as to how much they want to stabilise inflation in relation to stabilising the real economy – that they have different λ.6 Otherwise the policymakers are assumed to see things in the same way: They have the same view of the loss function, what it should include, and they make their forecasts of inflation and resource utilisation in the same way, in the same “model”. If this were the case in practice, the monetary policymakers could quite simply vote on the various effective dots presented in the figure with the mean squared gaps. But the reality is quite different. The complications I have mentioned so far, such as how the variables in the loss function should be measured or how to take risk into account, would cause problems even for a single monetary policymaker. But of course things become even more complicated with several different policymakers who may have differing views on these issues.

This can be how monetary policy should be adjusted to the rate of the recovery from the financial crisis, how global market prices and exchange rates may affect monetary policy, the monetary policy consequences of alternative outcomes in central wage agreements, what will happen if the sovereign debt crisis in Europe worsens, and so on. We should therefore continue to make forecasts and draw up alternative scenarios as a basis for our monetary policy. Report the uncertainty involved in comparisons of repo-rate paths We should report the uncertainty involved in the comparisons of forecasts for economic developments with different repo-rate paths that we regularly describe in our Monetary Policy Reports. Calculations of alternative scenarios are often made using Ramses, for practical reasons. My personal opinion is that the calculated effects of changes in the repo-rate path are unreasonably large. If this is the case, we would need to adjust the repo rate more so that monetary policy is well balanced. However, one can in theory show that the greater the uncertainty prevailing as to the effects of the interest rate on inflation, the less monetary policy should react when inflation deviates from the target. Within the framework of Ramses it is possible to place in order of preference different monetary-policy alternatives in figures, based on their average squared deviations from the targets for inflation and resource utilisation during the forecast period (see Figure 13).24 These figures, unlike the fan charts shown earlier, do not report the uncertainty.
High indebtedness is making household finances more sensitive to interest rate adjustments When monetary policy gradually starts to normalise and interest rates rise, it will happen against this backdrop of high indebtedness among households and high housing market valuation. In addition, many have taken out variable-rate mortgages with short interest-rate fixation periods. Taken together, this means that household finances are now more sensitive to adjustments in interest rates than before. Disposable income, that is income minus borrowing costs, is affected to a greater extent by interest rate adjustments when debt is high, all other factors being equal. Calculations show that an interest-rate rise of about 1 percentage point now has a significantly greater direct effect on household disposable income than in the mid1990s. In this sense, households’ interest-rate sensitivity is now greater. 6 The interesting question is whether households adapt their consumption to a corresponding degree so that consumption also changes to a greater extent. It need not necessarily be so. For example, interest income can offset the effect of higher interest expenditure. If households also plan in advance for a scenario where interest expenditure takes a greater share of their income, consumption may not necessarily be affected to any great extent. But research findings point to this potentially playing a major role at least for certain groups of households. 7 More specifically, it is shown that highly indebted households with variable-rate mortgages adapt their consumption to a greater extent than other households when interest rates change.

EBRD’s involvement in two very important initiatives, namely the Local Currency and Local Capital Market Initiative and the Vienna Initiative, has been essential for Romania and the region. I am closely following the evolution of the EBRD. I believe that it finds itself at a cross-road, as the world has been changing rapidly due to the remarkable achievements of the past century: the IT revolution, artificial intelligence, the technological progress and so on. EBRD, as other financial institutions, ought to adapt itself to this new environment and try to respond wisely and appropriately. In this respect, I think that EBRD has to continue its work in the countries for which the Bank was initially created, as transition gaps still exist. We all need to share our experience with the new countries of operations, adjusting our knowledge to new challenging environments. We need to remain open minded and ready to tackle further challenges in this multidimensional environment. EBRD needsto be ready to share, when and if its help is required. Together with the other institutions of European Union, the European Commission, the EIB Group, as well as the national development agencies of the member states, we all have a duty to help/assist the less fortunate. However, as expansion is a “hot topic” today in the EBRD, should it be considered by the shareholders in the future, it needs to be calibrated with a strong and decisive intervention in the current countries of operations, to remove as much as possible the transition gaps.
The USD 700 billion worth of stimulus package, which was prepared in September 2008 to enable the government to assume bad debts of US financial institutions and which was considered the biggest state intervention in recent years, was pending at the US House of Representatives for a long time due to the harsh reaction from the public. In the meantime, there was a negative reaction from the public towards the excessively high salaries of banking sector managers, who frequently was urged a readjustment to the remunerations of managerial staff. Furthermore, new arrangements were brought onto the agenda for stricter supervision and to restrict the activities of the financial sector. In addition to these developments, views related to inefficient functioning of public institutions in charge of supervising the financial sector, primarily the Federal Reserve, in the pre-crisis period, raised intense criticism on these institutions, too. Meanwhile, under the name of financial protectionism there have been advocates of the discourse that international banks should halt their functions abroad and instead lend to the corporate sector experiencing difficulty in finding funds at home. On the heels of “Denial” and “Anger”, the global crisis entered the third and most disturbing stage in the final quarter of 2008 and the first quarter of 2009. We can define the common public feeling that prevailed in the whole world in this period as “panic” and “fear of collapse”.

However, with the normalization in financial markets, we foresee that the distinguishing characteristics of countries will come to the fore in the upcoming period and currencies of those countries with lower risk, stronger economic and financial fundamentals and high growth potential are expected to perform better. In this regard, it would not be surprising if Turkey’s credit rating is raised to reach the investment grade implied by the actual CDS spread. As for recent developments in the Turkish economy, the moderate recovery in economic activity continues. Quarterly growth in GDP continued in the last quarter of 2009. As tax cuts that were put into practice with the aim of spurring economic activity were phased out, private consumption demand displayed a more moderate rise compared to the first half and the gradual recovery in private consumption expenditures continued in the third quarter. Meanwhile, private investment expenditures continued to pick up in the last quarter but remained lower compared to strong growth periods. Taking into account the uncertainties pertaining to domestic and foreign demand and the low capacity utilization rates, it is estimated that it would take an extended period of time for investment expenditures to reach their pre-crisis levels and no significant rise is expected in the short run. Recently, imports have increased faster than exports and this indicates that the recovery in the economy is mainly driven by domestic demand. The course of exports in the upcoming period will be determined by the pace of global recovery.
The definition of a severe economic downturn has been changed, however. According to the old agreement, a country experiencing a fall in GDP of 0.75% could be exempted from the EDP and a fall in GDP by 2% always led to exemption. Now the GDP requirement is changed to negative growth or a period of very low growth relative to potential. Exemptions can also continue to be granted by taking into account other relevant factors, on condition that the deficit is temporary and close to the reference level. But the number of other relevant factors to be included in the judgement of whether an EDP should be initiated or not has been increased. Such factors now include not only public investment but also potential growth, the Lisbon agenda achievements, R & D, pension reforms, international solidarity, and European policy goals. In my opinion, there is a risk here that the Pact could be interpreted differently and be applied differently to different countries. It will therefore be important to closely follow up how the revised Pact is applied in this respect. So far, however, no exemptions have been granted under the new Pact. The countries that have exceeded the three per cent limit have also been assessed to have an excessive deficit. If countries are found to have an excessive deficit, they now can have a longer time frame for taking effective action to correct the deficit and a longer timeframe to the initial deadline for correcting the excessive deficit.

However, as in the euro area, this baseline scenario for economic activity is subject to significant downside risks. In fact, the projected recovery in world trade and activity could be hampered by factors such as the possible adoption of further protectionist measures, the worsening of geopolitical tensions and the high level of indebtedness of certain agents in particular regions of the world. A source of further uncertainty, which has still to be clarified and has been highly unpredictable, is the process of the United Kingdom’s departure from the European Union and the subsequent negotiation of the future UK/EU trading relationship. Lastly, we cannot rule out that the uncertainty surrounding the future course of some domestic economic policies (such as budgetary policy and the structural reform agenda), arising from the difficulty in recent years of forming solid parliamentary majorities, or the recent events in Catalonia, may also, if they persist, have an adverse effect on the spending decisions of private agents. Transformations and vulnerabilities of the Spanish economy In this context, the Spanish economy, despite the improvements made during the recovery, continues to suffer from significant vulnerabilities. Progress in correcting these is urgently required, in order to enhance the economy’s resilience to possible adverse shocks.
It would also strongly support the European framework to be further enhanced with full capacity to check without restrictions facts and figures including through missions on the spot. I thank you for your attention. BIS Review 67/2004  7

It may also be difficult to predict financial market reactions to very low and negative real interest rates. As early as 1967, US economist William Brainard discussed how central banks should respond to economic shocks when there is uncertainty about the impact of the policy rate on the economy. He concluded that the policy rate should be used with greater caution when uncertainty about its effect increases (Brainard (1967)). This involves a trade-off that can be illustrated graphically. Chart: Monetary policy and uncertainty This chart describes a situation where the policy rate is used to counteract the effect of a negative shock to the real economy. Two different interest rate paths are shown. The uncertainty is illustrated using bands around the expected paths for the policy rate, inflation and the output gap. In the scenario denoted by the blue line, the central bank does not take the uncertainty associated with the interest rate into consideration. In contrast, the yellow line represents a scenario based on a more cautious monetary policy response to the perceived uncertainty involved. The expected real economic costs of a more cautious response – as measured by the output gap – are somewhat higher, and inflation moves further from the target. In that respect, this is a less appropriate path for the policy rate. But there is also a benefit: uncertainty about the future path is substantially reduced. As you can see in the chart, the uncertainty bands around inflation and output have narrowed.