samchain/econo-pairs-v1 huggingface dataset:
Recently, Matthew Rose, CEO of Burlington Northern Santa Fe (America’s second biggest rail company), expressed frustration at the focus on quarterly earnings when locomotives lasted for 20 years and tracks for 30 to 40 years. Echoes, here, of “quarterly capitalism”. This evidence – anecdotal, survey, quantitative – is broadly consistent with popular perceptions. Capital market myopia is real. It may be rising. For at least some of the jury, however, it remains inconclusive. In 2010, Richard Saunders (Chief Executive of the IMA) summed it up thus: “Now red lights start flashing for me when people talk about shorttermism, particularly when shareholders feature in the same sentence. What do people mean when they claim that shareholders behave in a short-term fashion? And what evidence do they have for it? I have yet to hear a convincing answer to either question”. 3. Testing for short-termism  In the quest for some concrete, quantitative evidence, our test of short-termism uses the forward-looking asset price framework of Miles (1993). A simple example illustrates the basic approach to testing myopia and its implications for project choice. (a)  A simple example  Consider an investment project costing $ This investment is riskless and pays $ at the end of each of 10 years.

The historically very low interest rates could create expectations of unrealistically low interest rates in future too and lead to households taking excessively large loans. Low inflation and amortisation-free loans will also lead to households being indebted for a long period of time. Households that have financed an expensive home through loans may therefore become very sensitive to corrections in house prices for a long period to come. How have we taken these risks into account so far? It may be useful to compare our decision in June 2005 with our decision at the beginning of 2006. In June 2005 we had been concerned for a long time over the future effects of increases in house prices and debts in Sweden, but when we saw that the national accounts data showed that growth in demand was not as broad and strong as we believed, consideration to growth and inflation 1-2 years ahead outweighed this and we cut the repo rate. At the beginning of 2006, however, it was clear that growth was broader and stronger than we had earlier believed and that inflation would thereby gradually rise towards the target. Concern over the future effects of exaggerated increases in house prices and debts then contributed to the arguments in favour of an interest rate increase outweighing those against and we raised the repo rate. The strong growth in the housing and credit markets was also taken into consideration in the most recent monetary policy decision, which can be seen in press release 2006-06-20.
The core principles of the science’s consensus remain valid today. Page 3 sur 8 In particular the two first principles—central bank independence and the primacy of price stability—remain essential for the credibility of the central bank. We are benefiting from it today through the—so far—relatively firm anchoring of longterm inflation expectations despite the surge in current inflation. This being said, we should acknowledge that new questions have arisen with the unexpected return of high inflation. Let me highlight three. A first question is the slope of the Phillips curve. To the enduring debate of whether it had flattened since the 1970s we must now add the question of whether it could be steepening again in the current inflationary environment. The question is central to assess how to quell inflation without engineering a harder than necessary landing of economic activity. Second, we still have to understand better how inflation expectations influence actual inflation. In recent years, we have made considerable progress –including at the Banque de France—in measuring the expectations of firms and households, which are the ones that matter for price-setting and spending decisions. iv But there is still relatively little empirical work on how their inflation expectations map into their actual pricing and spending decisions. v What the extent of pass-through from inflation expectations to inflation is, or whether past inflation plays a role beyond inflation expectations remain open questions. vi  Page 4 sur 8 Third, what about forward guidance? It was a decisive input of science, thanks to Eggertsson and Woodford.

Doing so is normalization, lifting our foot from the accelerator pedal. In my view, we could be there before the end of the year, after another significant step in September. Only beyond R* could tightening—actively pushing the brakes—begin; we will then have to discuss and decide, based on our assessment of actual inflation and the future outlook, focusing in particular on its core part and on wage developments. The US is obviously closer to tightening due to several differences in the nature of inflation there. But have no doubt that we at the ECB would if needed raise rates further beyond normalization: bringing inflation back to 2 % is our responsibility; our will and our capacity to deliver on our mandate are unconditional. III. How to remunerate massive excess liquidity when it coexists with positive rates? Let me come to another issue that we practitioners must now confront: how to remunerate massive excess liquidity when it coexists with positive interest rates? This will be a new situation for most of us, and especially for the euro area. While excess liquidity was negligible until 2008, it currently stands at more than € trillion, as a legacy of our APP and PEPP assets purchase programs, but also, for one third, our TLTROs. Yet, our reserve remuneration system was designed at a time of negligible excess liquidity. The system already showed its limits in the past, when having to coexist with negative interest rates.
In both of these segments, we hope to achieve the greatest impact on the market as a whole. In principle, we buy only marketable bonds and pay market prices. Apart from the mortgage bonds, we did not buy any bonds issued by financial institutes. As of mid-June, our total purchases amounted to around CHF 2.5 billion in mortgage bonds and roughly CHF 300 million in corporate bonds. For the time being, we plan to continue purchasing selectively. As regards volume, we have set no restrictions. The bond purchases also seem to have fulfilled their purpose. Risk premia have come down significantly (cf. chart 3). That said, we were able to benefit from the favourable mood in the financial markets. The fact that, in the past few weeks, several issuers found their way back to the issues market for the first time in a long time is further proof of the effectiveness of our strategy. SNB StabFund Developments in the market since the UBS package of measures was announced show that the transfer of illiquid assets from UBS to the SNB StabFund was both appropriate and absolutely necessary. Had these assets remained on UBS’s books and been valued at  2  BIS Review 77/2009  market price, the bank’s existence would have been seriously threatened these last few months. The transfer of assets was concluded at the beginning of April.

CPI is affected by technological changes, making it cheaper to make phone calls and to use the Internet. Inflation is also affected by the changes that come under the designation of globalisation, and that lead to increased trade and competition and to, for instance, cheaper imports of TVs. During the first three months of the year, inflation has not been as low as expected in the forecast made in February. This is mainly because energy prices have been slightly higher than calculated. In February we believed that CPI would be 1.5 per cent in March. Instead it was 1.9 per cent. Higher costs lead to higher prices One explanation as to why inflation is expected to rise in future is that growth in productivity – how much is produced per hour worked – is slowing down. At the same time, wages are rising slightly faster than they have done in recent years. All in all, this means that companies' costs are rising more quickly. It is difficult to say when a higher rate of increase in costs will lead to a higher rate of increase in prices. Many Swedish companies are currently making large profits and can probably manage a period with higher costs without raising their prices. There are also other factors holding back inflation. For instance, prices of many imported good are continuing to fall. Better understanding productivity Inflation has been below target since the beginning of 2004, but we can now see that it has begun to increase again.
Suffice to say, time is very unlikely to tell whether Mr Viniar’s empirical observation proves correct. Fortunately, there is a simpler explanation – the model was wrong. Of course, all models are wrong. The only model that is not wrong is reality and reality is not, by definition, a model. But risk management models have during this crisis proved themselves wrong in a more fundamental sense. They failed Keynes’ test – that it is better to be roughly right than precisely wrong. With hindsight, these models were both very precise and very wrong. For that reason, 2008 might well be remembered as the year stress-testing failed. Failed those institutions who invested in it in the hope it would transform their management of risk. Failed the authorities who had relied – perhaps over-relied – on the signal it provided about financial firms’ risk management capabilities. And, perhaps most important of all, failed the financial system as a whole by contributing, first, to the decade of credit boom and, latterly, the credit bust. That is a stark conclusion. But it is a conclusion which is hard to escape. When tested against real stress, large parts of the financial system seized-up and a number of financial institutions failed. Against that backdrop, now is as good a time as any for candour about what went wrong.

And from 1997 onwards, VaR came to take a degree of prominence within the regulatory community, with first the US SEC and subsequently the Basel Committee on Banking Supervision (BCBS) giving further impetus to VaR, including through the design and implementation of Basel II. By 2006, when Philippe Jorion published his famous textbook on VaR, relatively few would have disputed the claim in its title – “Value at Risk: The New Benchmark for Managing Financial Risk”. The message was clear: the technological frontier of risk management had been shifted outwards decisively. A cursory search suggests that there have been more than 200 books published on VaR since the October 1987 crash, or roughly one a month. The date of birth of stress-testing is harder to trace. Early mention is made of it in a technical note by RiskMetrics in 1996. But it is clear that stress-testing was given considerable impetus by the failure of LTCM more than a decade after the October 1987 crash. Unlike VaR, which had private sector origins, the official sector appears to have been at least as much a driver behind the adoption of stress-testing. By 2001, under the auspices of its Financial Sector Assessment Programme (FSAP), the IMF was publishing details of its stress-testing methodology and experience. Today, the same cursory search reveals over 250 articles on stress-testing in the past ten years, or more than one a fortnight. We were experiencing a second wave of technological revolution in risk management.
However, my main point is that, given all the moving parts, even the marginal impact of EU withdrawal on the appropriate level of UK interest rates is ambiguous. As the MPC said ahead of the referendum, in May 2016, the impact of a leave vote on monetary policy would depend on what it did to “demand, supply and the exchange rate”. These pull in different directions: holding fixed the other two, weaker demand tends to depress inflation and interest rates, declines in productivity and the exchange rate do the opposite. There are feasible combinations of the three that might require looser policy, others that lead to tighter policy. You might say this is true at any time. “Demand, supply and the exchange rate” can always move around and it’s not as if monetary policy makers can ever afford to ignore any of them. The MPC is always having to think very carefully about the forces on aggregate spending; it generally has to form some sort of view about underlying supply growth; it must always take into account the latest moves in exchange rates and other asset prices. Furthermore, in the normal course of events these three things do not move independently of each other. It’s usually not valid to vary only one and imagine the others will stay constant. Exchange rates are volatile but, over time, they often move because of news about domestic demand (Chart 2 plots smoothed series for sterling’s real exchange rate and the growth of domestic demand).

The MPC explained over a year ago that there were “limits to the extent to which above-target inflation [could] be tolerated” and that those limits depended on the degree of spare capacity in the economy. In March, eight months ago, it said in its Monetary Policy Summary that, if demand growth remained resilient, “monetary policy may need to be tightened sooner” than the market expected. Similar points were made in the intervening months. Yet, even as inflation rose, and the rate of unemployment fell further, interest-rate markets continued to under-weight the possibility that Bank Rate might actually go up this year. Chart 1 plots the cumulative change in the three-year sterling interest rate, over the past year or so, against what  Chart 1: Interest-rate markets relatively unresponsive  you might have expected to happen (based  to upside surprises in economic data through 2017  1  on historic correlations) given the pattern of data surprises. There is always room for judgement about any individual interest-rate decision and not everyone on the Committee agreed with this one. After a long period of weak wage growth there’s certainly room for doubt, or at least caution, about the inflationary impact of lower unemployment. (For my part I think  Sources: Bloomberg, Tradeweb, and Bank calculations. the evidence is still consistent with such an inflationary effect and I will say something about this later on.) 1  Cumulative changes in UK 3-year nominal spot rates.
When repeal of Glass-Steagall brought investment and commercial banks together, it would appear from the events over the last decade or so that the investment bank culture came out on top. The prevailing business strategy becoming pursuit of the high returns that could be obtained only through increasing leverage and risk-taking. What has changed: commoditisation of banking relationships 15. As well as bolting together different businesses with different cultures to achieve growth at a much faster pace than would be possible “organically”, banks have over the past few decades expanded from serving more limited numbers of wealthy customers to covering the mass market. Where once the local bank manager might have expected to know a significant number of his customers personally, now customer numbers are so large as to render relationship banking (outside of specialist areas such as private banking) all but impossible. The result? Well a degree of commoditisation, and perhaps inevitably alienation. As a banker cannot possibly engage with the vast majority of his customers, personal bonds are much weaker or indeed no longer created, blocking off another avenue through which relationships built on trust might develop. At the same time, customers have increasingly regarded banking as a transactional relationship and are willing to jump from one bank to another just for the sake of a slight improvement in the interest rate received on deposits. What has changed: short termism of shareholders 16. And if banks’ customers and creditors have changed – what about their shareholders?

I thank you. 2  BIS Review 15/2009
Asian monetary co-operation took quite a significant step forward when the financial package for Thailand organized by the IMF was met with ready willingness by a number of Asian economies, including ourselves. This I believe is the first significant arrangement involving Asian monetary co-operation through the provision of credit. As an international financial centre and an economy with significant interest in the Asian region, Hong Kong is willing to play its part in helping to maintain international and regional financial stability. This is ultimately in our own interest. This accounts for our willingness to join the New Arrangements to Borrow (NAB) to provide additional funding for the IMF. But the credit risks must be acceptable and manageable, and the case justifiable to the public in the overall public interest. Asian monetary co-operation through the provision of credit should therefore be on a multilateral basis and conditional upon the implementation of credible structural adjustment programmes. BIS Review 91/1997  - 11 -  52. At this point, we may well ask whether the present multilateral arrangements to handle international financial crises are totally satisfactory. It has been argued that economies in need should go earlier to the IMF for assistance. However, given the tough medicine that the Fund is well known to prescribe, there may have been a reluctance to approach the Fund, given also the limited resources available for a cure, thus delaying the whole process of crisis prevention and damage control.

In this connection, I should pay tribute to the foresight of Bernie Fraser, then Governor of the Reserve Bank of Australia, who called for the establishment of a new regional institution -- for want of a better name, an Asian BIS -- to promote Asian monetary co-operation. Bernie saw quite rightly that “globalisation is elevating the international dimension of monetary co-operation”. In response to his call, EMEAP convened a working group to study the proposals and, at its first Governors’ Meeting in Tokyo in July 1996, further established two working groups and a study group to share knowledge and expertise on financial market development, central bank operations and banking supervision issues respectively. Although the question on the establishment of a regional institution to further Asian monetary co-operation has been put aside for the time being, the progress achieved by the various groups was commendable, with ambitious plans to produce the Asian equivalent of the Green Book on banking supervision, the Red Book on payment systems and a Gold Book on reserve management practices. 20. Meanwhile, greater international monetary co-operation involving the Asian economies was also advanced when the BIS admitted the People’s Bank of China, the Reserve Bank of India, the Hong Kong Monetary Authority, the Monetary Authority of Singapore and the Bank of Korea, among others, to its membership in 1996, the first new Asian members after the Bank of Japan. 21. All these initiatives were unfortunately overshadowed by the advent of the Thai crisis, which erupted in May this year.
In both cases, the National Bank would react with adequate means. To conclude my remarks, I would like to reiterate what role the exchange rate plays in our monetary-policy decision-making process. We live in a system with flexible exchange rates. Such a system is very advantageous for Switzerland, but once in a while exchange rate fluctuations have to be reckoned with. We are currently going through a period characterised by a strong Swiss franc. In the past, there have always been phases during which the Swiss franc tended to be very strong. Experience has also shown, though, that there have always been corrective phases as well. It is the National Bank's responsibility to maintain price stability in the medium term, thus creating a favourable environment for the development of all sectors of the economy. For monetary policy, the exchange rate is an extremely important measure, as it influences the price level directly via import prices as well as indirectly via capacity utilisation in the export sector, and thus via economic growth. Particularly the last nine months exemplify the strong influence of the exchange rate on Switzerland's monetary policy. We always neutralised the tightening of monetary conditions, which was brought about by the appreciation of the Swiss franc, and rendered Swiss franc investments less attractive. We are aware of the fact that these measures do not provide relief to all sectors of the economy at the same time or to the same extent.

Inflation Forecast June 2002 with Libor at 1,25%  Annual average inflation in %  BIS Review 39/2002  2001  2002  2003  2004  1.0  0.9  1.3  1.6  3
José De Gregorio: The role of central banks after the financial crisis Keynote speech by Mr José De Gregorio, Governor of the Central Bank of Chile, delivered at the Bank of Korea International Conference 2010, 31 May–1 June 2010, Seoul, 1 June 2010. *  *  *  I am very grateful to Luis F Céspedes and Kevin Cowan for insightful discussions and contributions. As a response to the global financial crisis of 2008–2009, we witnessed a period of unprecedented central bank activism. Many central banks, particularly in developed economies, implemented diverse policy actions. Central banks around the world reduced monetary policy rates to their lower bounds and announced their explicit commitment to keep these rates at that level for a prolonged period of time. Some of them went further, including the purchasing of private securities, lending to financial institutions other than banks and exchange rate interventions. All these actions contrast with how monetary policy was conducted during the so-called “great moderation”, which extended since the mid 1980s. During this period, most central banks relied exclusively on short term interest rate management in order to achieve their goals. This dramatic change of events has led many observers to argue that central banks forgot about a crucial task in their mandates – financial stability – and/or they were imprudent for thinking that an adequate management of the short term interest rate would suffice to secure price and financial stability at the same time.

If households and businesses believe that the Fed has run out of tools to provide monetary policy accommodation or is unwilling to use certain tools for that purpose, the risk of inflation expectations becoming unanchored to the downside would increase, which would make it even more difficult for the central bank to achieve its goals. For these reasons, LSAPs should be viewed as a viable tool in our arsenal to be used when the zero lower bound is a relevant policy concern. In terms of calibration, if LSAPs are not as powerful as some of the event studies imply, the answer is not to simply discard the tool, but instead to look for ways to enhance its efficacy and use it more aggressively. In this respect, I believe that LSAPs work best when they are openended. In such circumstances, the use of the tool is likely to be helpful in reducing tail risks and making the bad states of the world less likely rather than signaling to market participants a significant deterioration in the Federal Reserve’s outlook. LSAPs may also be a useful means of making forward guidance more credible.