samchain/econo-pairs-v1 huggingface dataset:
Why are downturns after financial crises more likely to result in a prolonged period of weak activity and elevated unemployment – a slump, in other words? There are, I believe, two main reasons. The first is the unduly sharp and sustained decline in confidence. Over-confidence and underestimation of risks during the pre-crisis boom gives way to extreme caution and a preference for safe, rather than risky, assets – a shock to “animal spirits”, if you like. When investment is costly to reverse, that is likely to result in a sharp reduction in capital expenditure (e.g. Dixit and Pindyck, 1994). Similar arguments apply to durable expenditures by consumers. The near-seizure of the international financial system after the collapse of Lehman Brothers administered a particularly large adverse shock to animal spirits. Although that event is gradually receding into the past, it has been superseded by uncertainty surrounding the ability of the euro area to resolve the indebtedness and competitiveness problems of the periphery. Substantial policy steps have been taken since the summer, including the launch of the European Stability Mechanism, steps to set up a banking union, and the ECB’s announcement of its willingness to purchase the short-dated debt of troubled sovereigns. But it will be a long time before a resolution is complete and the consequent uncertainty is likely to weigh on demand for some time yet.

On top of that, the financial crisis has most likely resulted in some deterioration of the capacity of the financial sector to generate export earnings, creating a need for an additional expansion in the rest of the tradable sector of the economy. Generating this shift in the composition of activity requires a real depreciation of sterling. While that has happened – the real effective exchange rate for sterling is almost 15% below its pre-crisis level – it will inevitably take time for resources to transfer to the tradable sector from the domestically-facing sector. Moreover, weak growth in most of the other advanced economies has not provided the best of backgrounds for such a re-balancing. The bottom line of all this is that considerable real adjustments are called for. These real adjustments – balance sheet repair and the sectoral reallocation of resources – inevitably take time. It is against this background that monetary policy needs to be set. On the one hand, a highly stimulatory policy stance can encourage households and businesses to bring forward expenditure, boosting demand and mitigating the destruction of the economy’s supply capacity that can result from a prolonged period of weak demand as firms are driven out of business and the skills of unemployed workers atrophy. On the other hand, such policy can also delay the transition to a new growth path if it slows the process of balance sheet repair and inhibits the process of “creative destruction” as unprofitable firms are closed and the liberated resources shifted to the expanding sectors.
Currently, the ECB is also carrying out a stress test to assess the impact of climate-related risks 8 3/5  BIS central bankers' speeches  on the European banking sector over a 30-year horizon.8 We will map projections of climate patterns and expected climate developments to the location of firms’ physical assets and estimate the impact that severe climate events would have on those assets and, consequently, on banks’ portfolios. Together with other central banks, we are developing joint climate stress test scenarios. Besides allowing us to conduct an in-depth investigation into banks’ internal practices around climate risk stress testing for the first time ever, the stress test will help us catalogue the resilience of banks’ balance sheets to risks coming from climate change. Importantly, this exercise will push banks to strengthen the climate dimension of their risk management toolbox. Finally, the exercise will also dramatically increase the availability of data and shed light on our supervisory reporting needs around these types of risks. Given our current lack of data, this will greatly help us in charting the course forward. This year’s climate stress test exercise is being conducted centrally by ECB staff, relying on the aforementioned datasets and models. This approach differs from that taken for the supervisory climate stress test, which has already been announced for 2022. Next year’s climate stress test of individual banks will instead rely on the banks’ self-assessment of their exposure to climate change risk and their readiness to address it.

Figure 2 Long-term interest rate  (Central Bank instruments, percent)  9  9  8  8  7  7  6  6  5  5  4  4  3  3  2  2  1  1  0  0 03  04  05 5-year BCU  06  07  08  10-year BCU  09  10  11  10-year BCP  12  13  14  5-year BCP  Source: Central Bank of Chile. BIS central bankers’ speeches  9  Figure 3 Labor force participation by gender (percent) 90  90  80  80  70  70  60  60  50  50  40  40  30  30 96  98  00  02  Men, Chile  04  Men, OECD  06  08  Women, OECD  10  12  Women, Chile  Source: OECD. Figure 4 Inflation indicators (*) (annual change, percent) 5  5  4  4  3  3  2  2  1  1  0  0 11  Jul. CPI  12 CPIEFE  Jul. 13  EES one year ahead  Jul. 14  Jul. EES two years ahead  (*) As from January 2014, new indexes are used with annual base 2013=100, so they are not strictly comparable with earlier figures.
For example, if the level of output in the UK economy were to return to pre-Covid levels in 2023, rather than 2022 in the MPC’s central case, this would lower inflation by around 60 basis points at the two-year horizon, leaving it comfortably below its 2% target. In summary, then, historically low rates of inflation driven by disinflationary demand and supply-side forces have been given further impetus by the Covid crisis. This provides reasonable grounds for believing  inflation, in the UK and globally, could remain low in the period ahead. Indeed, there are reasons to think there are significant downside risks to the inflation outlook, as the MPC’s fan charts illustrate clearly. 12 12  Evans et al (2015). 11  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  11  A Higher Inflation Equilibrium Inflation-targeting requires a judgement on future inflation, not an extrapolation of the past. That is pertinent at present because there are several good reasons why future inflation trends may not match the past. The Covid shock is fundamentally different from the global financial crisis. And some of the forces acting on inflation in future, both cyclical and structural, may reverse direction. Let me discuss these factors in turn. (a) The Covid Crisis and the Output Gap The restrictions needed to contain the spread of Covid have had a profound impact on both demand and supply in the economy.

In conditions of reduced import prices, the inflation continues to slow down, so that the average as well as the annual inflation rate for February equaled 1.2 and 0.7 percent, respectively. Inflationary developments within the first two months of this year show that inflationary path for this period is under the projected one. Such deviations, to a large extent may be explained with the fast decline of oil prices on world markets and with even faster deceleration of food prices. In conditions of risks for a possible bigger then expected deceleration of domestic demand, as well as due to higher reduction of  2  BIS Review 60/2009  import prices, risks about the projected inflation are towards realizing lower then projected level of inflation. Figure 1 Inflation (in %)  3)  In the external sector during 2008 the highest ever current account deficit of 12.7 percent of GDP was realized, which is a significatn increase (by 5.5 percentage points) compared to the previous year, and to a large extent it is explained by the trade deficit worsening and reduced net inflows from private transfers. Yet, such a gap, during the most of the year has not created strong pressures towards NBRM foreign exchange market interventions, having in mind that in a significant part it was financed by direct investments, as well as through foreign assets of domestic banks.
But we must be prepared for a time when the industry is no longer expanding, but gradually declining, and we will need growth in other industries. Businesses must drive structural change and innovation, but the authorities can provide favourable operating conditions to promote an innovative and sustainable business sector. Norway ranks high on the ease of doing business index4, supported by solid institutions, a high degree of confidence and a solid welfare system. History has shown that Norwegian business and industry have a strong capacity to adapt. Many of today’s oil service operators had a long history in other industries before moving into the oil sector. A prime example is the shipbuilding industry, which faced a sharp drop in demand for ships in the 1970s. The industry had resources and skills that could be reoriented to production of platforms and other inputs in the oil industry. In hindsight, this was a fortunate stroke of serendipity. Companies in other industries have also seen the opportunities afforded by new technology or changes in operating conditions. One example is Borregaard. The company has existed through several industrial revolutions. An abundant supply of timber and hydropower from the Sarpsfossen waterfall was a good starting point. Through the years, new technology was adopted – from water-driven sawmills in the 1600s to waterfall power at the end of the 1800s, and to today’s fully automated activities.

Page 2/4  Berne, 13 December 2018 Thomas Jordan  News conference  Swiss economic outlook  I shall now turn to the economic outlook for Switzerland. According to initial estimates, Swiss GDP fell by an annualised rate of 0.9% in the third quarter. Despite this decline, GDP was still 2.4% higher year-on-year thanks to the strong expansion in the previous quarters. How are we to assess this development? First, a slowdown in momentum was to be expected after several very strong quarters. Second, the decline in GDP is also attributable to a number of temporary factors. These include the absence of the contribution made by major international sporting events and the weather-related production losses at hydroelectric power plants. An analysis of all the available economic indicators points to momentum weakening slightly but remaining positive. The favourable development on the labour market also continued. Employment increased strongly in the third quarter. The unemployment rate declined again through to November and now stands at 2.4%. The companies surveyed by our delegates in October and November expect staff numbers to rise in the coming months. They also report increasing difficulties in finding specialist employees. We are now anticipating slightly lower GDP growth of around 2.5% for 2018 as a whole. As in other countries, economic momentum in Switzerland is likely to weaken somewhat in 2019. We are expecting a rise of around 1.5% in GDP for the coming year. Overall, capacity utilisation in the Swiss economy should remain high.
As a further gloss on that piece of history, I should perhaps disclose that, working to Eddie, Mervyn and the then DG , Howard Davies, I was the Bank official who “held the pen” during that work. 21  As stated in Balls, E and G. O’Donnell, 2002, Reforming Britain’s Economic and Financial Policy, “The role of the Chancellor in appointing the four outsiders was part of the delicate constitutional balance that was struck in a move towards a legitimate model of central bank independence consistent with British-style accountability to Parliament.” (page 99)  4  BIS Review 66/2007  This is what I have been leading up to: an “individualistic” committee was a necessary condition for operational independence in the UK. In terms of solving the time-consistency problem and establishing credibility, the UK system does not rely on handing monetary policy, lock, stock and barrel, to a group of “conservative central bankers”; in terms of the literature familiar to this conference, the system is as much Walsh as Rogoff. 22 The regime is based on combining an objective set by democratically elected politicians, with clear accountability mechanisms. One of those mechanisms was triggered for the first time recently when CPI inflation rose to 3.1% in March, requiring the Governor, on behalf of the Committee, to write an open letter to the Chancellor about what we thought was going on and what we planned to do to get inflation back to our target of 2%.

Reflecting changes in the structure of the financial system, we have included questions on demand for  30  “The transmission mechanism of monetary policy”, a paper by the Monetary Policy Committee, April 1999. 31  “The Bank of England’s submission regarding the economic context”, memorandum submitted in evidence to the Treasury Select Committee inquiry on “The Monetary Policy Committee of the Bank of England: Ten years On”, April 2007. 32  See Goodhart, C. A. E., 2007, “Whatever Became of the Monetary Aggregates?”, Peston Lecture at Queen Mary College, London, and King M. A. K., 2007, “The MPC ten years on”, lecture to the Society of Business Economists, May. 33  See Tucker, P. M. W., 2006, “Macro, asset price and financial system uncertainties”, Roy Bridge Memorial Lecture to the ACI – The Financial Markets Association, Bank of England Quarterly Bulletin, Spring 2007, page 127 for discussion on growth in financial sector money holdings, and page 129 for discussion of the composition of balance sheets of large banks. 8  BIS Review 66/2007  credit from hedge funds and structured finance vehicles, as well as on the terms and conditions on bank lending to households and firms. Second, we need to be careful in distinguishing the implications of credit conditions and asset prices from any extra role played by the rate of growth in banking sector liabilities (broad money).
Lars Heikensten: Monetary policy - some current issues Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at the Stockholm School of Economics, Economic Association, Stockholm, 10 February 2004. *  *  *  Let me begin by thanking you for the invitation to come here to the economic association. It has become something of a tradition that the Riksbank Governor comes here once a year to talk about current issues regarding monetary policy. I think this is excellent, particularly as it contributes to a lively, in-depth discussion of monetary policy in society. Those who have followed the Riksbank and monetary policy in recent years know that transparency and clarity have been guiding principles in our work. Today I intend to provide some perspective on monetary policy by means of a backward glance over the past ten years. This is a natural foundation for the current discussion on interest rates which I will address a little later. I have no intention of giving any new monetary policy signals today, but to give an account of the basis for our repo rate decision last week. One particularly interesting question at present is productivity growth, which appears to have been better than expected last year. The conclusions that can be drawn from this development are my third theme. Finally, I shall give my views on the recent monetary policy debate, something I have been asked about on numerous occasions in the past couple of months.

Instead, the Government, on the advice of the Central Bank, announced on 29 September that it was taking a 75% equity stake in Glitnir valued at € m. This implied a big fall from what such a stake was valued at in the market the week before. In the following week, the equity price collapsed further, ending the week 75% below its value at the end of the preceding week. This action did not boost market confidence in the Icelandic banking system. On the contrary, it intensified the run. On the following day, both the sovereign and the banks were  2  Baba, Naohiko, Frank Packer and Teppei Nagano, (2008). “The spillover of money market turbulance to FX swap and cross-currency swap markets”, BIS Quarterly Review, March 2008, 73–86; Baba, Naohiko, and Frank Packer, (2008). “Interpreting deviations from covered interest parity during the financial market turmoil of 2007–08”, BIS Working Papers, No. 267. See also Box III-1, “The recent turmoil in the Icelandic foreign exchange swap market” in the Central Bank of Iceland Monetary Bulletin 2008/1, pp. 26–29. 4  BIS Review 9/2010  downgraded by two notches, followed by widespread margin calls and closing of credit lines. The foreign deposits that had helped to alleviate the foreign liquidity squeeze experienced outflows. And the equity loss involved in the Glitnir takeover created a domino effect within the Icelandic financial system.
Mugur Isărescu: Transition – how to secure a stronger economic future for the constituency? Speech by Mr Mugur Isărescu, Governor of the National Bank of Romania, in the panel on “Transition: How to Secure a Stronger Economic Future for the Constituency?”, during the annual meeting of the IMF and World Bank Constituency, Kyiv, Ukraine, 4 June 2016. *  *  *  Ladies and Gentlemen, In my address I would like to focus on the challenges in conducting monetary policy in a way that will contribute to securing a stronger economic future for countries in our constituency. Obviously, my account is shaped by Romania’s experience, but I hope it will still keep you interested, as it may be relevant for other small to medium-sized emerging economies. 1. Brief account of monetary policy regimes in Romania  At the time when the National Bank of Romania had to choose a strategy for conducting its monetary policy, i.e. in the early nineties, monetary targeting was actually the only feasible option. Not only did the low forex reserves preclude a fixed exchange rate arrangement, but, even if possible, the alternative was not suitable given the widening external imbalance. However, by the end of the decade, monetary targeting had reached its operational limits given the break in the relation between monetary aggregates and inflation, a phenomenon which matched developments elsewhere in the world. At that point, we took into account pegging the exchange rate, but neither the hard nor the soft version was deemed appropriate.

For instance, in 2013 Charles Wyplosz stressed that even though there are times when inflation targeting seems inconvenient and possibly counter-productive, the alternatives – monetary targeting, nominalGDP targeting or no explicit strategy at all – would probably not have done a better job. Along the same lines, Lucrezia Reichlin and Richard Baldwin concluded that inflation targeting should continue to be refined, not replaced. Of course, since I come from a central bank practicing inflation targeting, I tend to agree with the latter line of thought, as I believe that, whatever its faults, the strategy has enough intrinsic flexibility to enable it to address them. BIS central bankers’ speeches  3
Countries around the world, with no exception, find themselves striving to meet two objectives simultaneously: protecting lives and maintaining livelihoods. With the growing economic impact of protective and preventative health measures, more efforts are needed to bridge the gap between the two goals to gradually reach an equilibrium that enables a complete resumption of economic activity, without neglecting the precautions necessary to live with the virus until it could be eradicated. Only upon striking this balance can we say that we have, indeed, conquered the “lives-and-livelihoods” paradox. On a local level, we have suffered a double-blow. Alongside the severe economic repercussions of pandemic-related measures, oil prices also dipped to levels unseen for over two decades. Between the lockdown decision of March 12 and the announcement of the plan for resumption of activity on May 28, 2020, almost three months have passed. According to the plan, complete return of economic activity – barring any setbacks – is slated for early September 2020. This  Central Bank of Kuwait - Public ‫ عام‬- ‫بنك الكويت المركزي‬  -2-  means the lockdown period spans a whole six months. As a result, many private sector companies are facing great liquidity and cashflow difficulties, causing financial solvency issues as severe as bankruptcy. And in view of the inter-connectedness of all economic sectors, the damage threatens to quickly reach even the most stable sectors.

2  BIS central bankers’ speeches  Similarly meaningful structural reforms are not easy or popular to implement during a recession. Since it takes time for these microeconomic measures to generate the so-called macroeconomic dividends, correction of the excessive debt ratio often requires a sharp fiscal correction, which brings in its wake a slowdown in economic activity. The lessons to learn from this experience are that fiscal prudence and the safeguarding of competitiveness have to be an ongoing and constant endeavour. It becomes difficult to apply fiscal discipline and structural reforms when the need becomes urgent or during an economic slowdown. As a number of countries have grossly breached the deficit and debt rules of the Stability and Growth Pact, they have not only threatened their own economic sustainability but also undermined the stability of the euro area as a whole. As a result, there is a broad recognition across the EU that fiscal governance has to be strengthened and that the Stability and Growth Pact should be reinforced once again. There is the search for mechanisms that would ensure the effective and concrete intervention of the European Commission when Member States breach the deficit and debt rules as set out in the Pact. Of course, the eventual changes in the system have to be decided through negotiations. Perhaps it is worthwhile to take heed of recent comments by the outgoing President of the ECB, Mr Jean-Claude Trichet, who recently expressed his personal view on this subject.