samchain/econo-pairs-v1 huggingface dataset:
On the contrary, the US economy will soon have achieved the longest upward phase in the post-war era; the earlier record is due to be broken next month. While monetary policy has not, of course, been solely responsible for this, the achievement does demonstrate that a judicious interest rate increase can definitely contribute to a good economic performance, provided the sustainability of growth is taken into account. Neither should it be forgotten that in the past two years the Riksbank lowered the repo rate from 4.40% to 2.90% in connection with signs that economic activity would be checked by the Asian crisis, the suspension of Russian payments and problems connected with the American hedge fund Long-Term Capital Management. These obstacles are now out of the way. Conclusion On Thursday next week the Executive Board of the Riksbank will be having this year’s first monetary policy meeting. In the light of how we jointly consider that the economy will develop in the coming years, the six members of the Board will decide whether the repo rate is to be increased or held unchanged at 3.25% for somewhat longer. Today I have pointed to some of the factors I believe will be discussed at the Board meeting. BIS Review 6/2000  4  It will be a matter, as always, of basing the monetary policy decision on a comprehensive picture of the various indicators of economic activity and inflationary pressure that the Riksbank follows continuously.

While there are signs of effects on demand that might be explained in the same way as in the US economy, the supply-side effects via higher productivity growth are not yet as clear or as universal. It is conceivable that such effects on supply will materialise and the Riksbank must be alert to that possibility. But we cannot count on such hopes in advance, particularly as they have not yet left any mark on leading indicators, for instance in the form of rapidly rising investment. What is the level of unutilised resources? Another aspect of the speed limit to economic growth, at least in the short run, is the level of unutilised resources. An important component here is the extent of unutilised labour. Experience shows that the stability of inflation has to do with the level of unemployment. If unemployment falls below a certain level, a stronger stimulation of production and employment (by means of a more expansionary economic policy, for example) simply leads to bottlenecks, shortages and rising inflation. Instead of a permanently higher level of employment, the end result is a return to higher unemployment. This level of unemployment is not something that monetary policy can alter. It has to do with other factors, such as occupational and geographical mobility, the propensity to take the jobs that are available, and so on. Contributions in this field can be made with other components of economic policy but not, as I said, with monetary policy.
It is set out in a revised Sterling Monetary Framework (SMF), published today.11 The new framework builds on the lessons learned throughout the financial crisis and draws on the recommendations made by Bill Winters in his review of our system.12 Five simple words describe our approach: we are open for business. Our facilities are not ornamental. They are there to be used by banks to access money and high-quality collateral. We are offering money and collateral for longer terms. The range of assets we will accept in exchange will be wider, extending to raw loans and, in fact, any asset of which we are capable of assessing the risks. And using our facilities will be cheaper. In some cases the fees are being more than halved. Banks can be confident that, when they want to use our facilities, they will be allowed to access them. Because we are both the supervisor and the central bank, the strong presumption is now that, if a bank meets the supervisory threshold conditions to operate and has signed up to our framework, it will be able to use our facilities. Our Discount Window will be open every day for those firms requiring a bespoke facility with lagged disclosure. Its price will be lower. We will hold monthly repo auctions to provide predictable and regular access to high-quality collateral in exchange for a very broad range of collateral. And in times of actual or prospective stressed conditions we stand ready to provide cheap, plentiful money through more frequent auctions.

Figure 2 Household debt ratio Debt as a percentage of disposable income 350  350  Ireland Spain  300  300  Denmark USA United Kingdom  250  250  Sweden  200  200  150  150  100  100  50  50  0  0 95  97  99  01  03  05  07  09  11  Source: OECD  Countries that have experienced a fall in housing prices in connection with the crisis have also had a fairly severe fall in unemployment (see Figure 3) and in many cases the recovery is still progressing very slowly. BIS central bankers’ speeches  5  Figure 3 Unemployment Unemployed as a percentage of the labour force, index, 2007 = 100 350  350 Ireland (-47.2 %) Spain (-30.8 %) Denmark (-27.6 %)  300  300  USA (-26.7 %) United Kingdom (-12.9 %) Sweden (0.0 %)  250  250  200  200  150  150  100  100  50  50 00  02  04  06  08  10  12  Note. The figures in brackets refer to the fall in real housing prices from the peak to the trough. Source: OECD  It is also worth emphasizing that the countries that have been hit hardest include ones with both stronger and weaker wealth positions than Sweden (see Figure 4).
The unconventional measures used in this regard also proved to be effective. Yet despite these measures, the cost of the crisis remains enormous. One central conclusion, therefore, is that more attention needs to be paid to crisis prevention in order to improve the stability of financial systems. However, monetary policy instruments are only suitable up to a point in countering the emergence of financial imbalances. Hence, a different approach is needed. Strengthening macroprudential supervision and regulation is one plausible option. Macroprudential policy takes account of systemic risks in the financial sector through action geared to reducing such risks. As yet, however, we have little experience of this type of supervision and regulation. It is therefore vital that we act prudently and gradually when implementing any new measures, and that we give ourselves adequate time. The first step is to define clear and realistic mandates and objectives and to evaluate possible instruments. Collaboration between the various authorities involved – both nationally and internationally – is also of crucial importance. Overall, we need to create conditions that allow the timely application of suitable instruments to counter emergent financial instabilities. These instruments would essentially supplement our set of existing monetary policy instruments. Within such a framework, the SNB would be able to make an optimum contribution to both objectives – price stability and financial stability. 6  BIS Review 121/2010

Lars Heikensten: Stability and Growth Pact needs reinforcement Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, at a conference organised by the European Commission, Brussels, 15 December 2004. *  *  *  Thank you, Mr Chairman. I very much appreciate this opportunity to comment on the work of the Commission. Perhaps the invitation is particularly pleasing for me as, unlike the other members on the panel, I do not come from a country that has introduced the euro. I should also immediately say that I very much enjoyed reading the background report and the communication on the Stability and Growth Pact produced by the Commission. Let me begin by characterizing the experiences from the Monetary Union so far. There is no doubt that the regulations on fiscal policy laid down in Maastricht had clearly positive effects up until the euro was launched. They are still having the same impact on those countries that remain outside the single currency and have the ambition of joining in the future. Far-reaching measures were taken, and are also being taken today, to enable entry into the Monetary Union. Noting the progress, some people have even claimed that earlier less well-functioning national economic-political cultures have been replaced by a more stability-oriented common European culture. But since the start of Monetary Union, this momentum has been lost. Several countries have returned to their old behaviour even though there are good examples of the contrary.
Since the recession’s end in 2009, more than once the FOMC’s projections have proved too optimistic, and the U.S. economy has been unable to achieve escape velocity for returning to stronger, selfsustaining growth. But instead of doing nothing, the FOMC took further policy actions to support stronger growth in the context of continued price stability. These actions have provided a credible counterweight to the forecast errors and maintained steadfastness with our medium-term policy objectives. I’m not so sure how well we will do going forward. My recent speech in London on dual mandate arithmetic was meant to clarify the challenges we face in describing the Federal Reserve’s policy objectives. The upshot I take from that analysis is this: If we sit on our hands as the economy withers relative to our mandate, then we could take a huge hit to our credibility, akin to what happened to our credibility following the devastating mistakes of the 1930s. Two examples of enormous credibility hits to monetary policy: the 1970s and 1930s The Federal Reserve’s policy actions during the 1970s and 1930s stand out as two exemplary cases of poor monetary policymaking. In the post-war era, most critics of expansionary monetary policy cite the 1970s Fed Chairmen, Arthur Burns and William Miller, as writing the playbook for high inflationary outcomes. By most accounts, the Burns - Miller Fed failed to understand that growth in the productive capabilities of the U.S. economy had slowed.

In addition, changes in labor markets made it harder to allocate workers to new jobs  BIS central bankers’ speeches  3  in quick order. As a consequence of these structural shifts in the functioning of the economy, the Fed policymakers failed to realize that output was higher than they thought relative to its potential. As a result, additional monetary stimulus couldn’t bring about stronger growth and lower unemployment, but only exacerbated inflation, higher inflationary expectations and an accelerating wage – price spiral. In fact, inflation rose to double digits, wages chased these prices higher in order to minimize reductions in living standards, and unemployment remained high. The Burns-Miller Fed failed, but where was the failure greatest? With regard to my earlier description of the policymaking process, the Burns-Miller Fed did not properly understand the changing evolution of the U.S. economy in the 1970s, nor how monetary policy interacted with the new structure. To be fair, the Burns-Miller Fed was not alone – other experts at that time made the same mistakes. These common misunderstandings meant that the credibility loss over being slow to understand the changing environment probably was not large. Far more damaging to the Burns-Miller Fed’s credibility was the failure to adjust policy when it later saw rising and high inflation and inflation expectations. Surely, those developments were major evidence of a change in the structure of the economy, and the Burns-Miller Fed’s failure to adjust its thinking and policy in light of them had huge implications for credibility.
350  300  300  250  250  200  200  150  150  100  100  50  Jan.05  Jul.05  Jan.06  Latin America Eurozone  Jul.06  Jan.07  Jul.07  Jan.08  Emerging Asia United States  Jul.08  50  Jan.09  Emerging Europe Japan  (*) MSCI for regions, Dow Jones for the U.S. and Nikkei for Japan. Source: Bloomberg. Figure 12 Commodities prices (index 01/03/2005=100; gold in US dollars per ounce) 400 Subprime crisis erupts  300  Bear Stearns  1,200  Lehman, AIG, etc. 900  200  600  100  300  0 Jan.05  Jan.06  Jan.07  GSCI grains and cereals GSCI energy GSCI metals  Jan.08  Gold  Jan.09  0  Source: Bloomberg. BIS Review 76/2009  13  Figure 13 Share of durable goods in total exports and contribution of exports to GDP quarterly growth in the fourth quarter of 2008  Durable exports (percentage of total exports)  HK  60  SIN  50  COR  HUN FIN  RCH  40  TAI  ALE  30  HOL BEL  R2 = 0,52 -35  -30  20  CAN  BRL AUS CHL  ARG  -25  -20  -15  -10  -5  NZL  10 NOR  0  COL  5  10  Exports (contribution to GDP, annualized quarterly change, percent) Source: Central Bank of Chile.

We can also think of durable goods demanded by firms when they invest (e.g., machinery and equipment, warehouses, plants). The demand of consumers and firms is a function of their expectations of future income, directly related with the expected value of aggregate output in the economy. Y will denote the level of output and EY its future expected value. We will also assume that the demand depends on the level of uncertainty which we will call σ and I will discuss later. For now, it is enough to consider that the demand falls when uncertainty grows. Thus, the demand for goods is represented by D(EY,σ). Firms, in this example, produce what is demanded from them. 2 Normalizing the population of firms and consumers to 1, the equilibrium will occur when the demand equals the supply (Y=D). In equilibrium under rational expectations, product must be equal to expected product, or: Y=D(Y,σ) Now, with a couple more assumptions we can find the equilibrium (Figure 2). The equilibrium is unique in A. For this, the demand is assumed to be concave, that is, any additional demand for goods is smaller as income increases. To ensure a unique equilibrium we assume that, for EY=0, the demand for the good is positive. This can be understood as the individual having another source of income and expenses, and always wanting to devote part of the other income to consume this good.
The ideal which it is hoped that the proposed law will achieve is one in which there will be continuous and constructive co-operation between the Monetary Board and the Government. The principal instrument for achieving this co-operation should be the Permanent Secretary to the Ministry of Finance whose membership on the Board will ensure at all times that his Minister’s views will be made known to the other members of the Board. The effectiveness of this co-operation and co-ordination between the Board and the Government will depend more upon the men occupying the key positions at particular times than upon any legal formula, no matter how carefully or elaborately it might be worked out. A relationship as complex, and sometimes as delicate, as this one is certain to be, cannot be established fullblown by a piece of legislation. It must be the result, as in other countries, of years of experience and the slow growth of political conventions. One further point is well worth making. There is a clear need in Ceylon for some sort of economic council at Cabinet level to achieve improved co-ordination of Government economic policies. If in future such a council is set up it is suggested that the Governor of the Central Bank should have a place upon it……”  BIS central bankers’ speeches  7  Finally, officers of the central banks are not gods to know all problems in advance and give 100% solutions. We are all human beings and make mistakes.

On matters of vital interest to the state, however, it must be recognized that even in the absence of some such formula as the British or the Australian, it would be impossible for the Central Bank to adopt a policy or pursue a course of action contrary to the policy of the Government of the day. No agency which is a creature of the Government can be entirely independent of the Government. While the Government may be prepared to give an independent regulatory agency rather wide discretion in a field such as that of money, there is no gain-saying that in the last analysis the Government must assume responsibility for monetary policy as for other policies. The Governor and the appointed member of the Monetary Board cannot help being acutely conscious of the fact that, since no Parliament can bind its successors, their independence and tenure in office under the proposed legislation is limited by the ultimate power of the Government to change the law. The exact degree and independence of the Central Bank is likely to vary from time to time. For example, central banks can ordinarily act more independently in stable, peace-time economic conditions than in time of war or other national emergency. They also tend to take stronger stands on issues which are primarily monetary in character than on related issues which may simply have monetary repercussions.
Equally, the most prominent banks should invest their efforts, not in resisting fundamental change, but in genuinely supporting the work to bring it about, in the interests of a more longterm and less volatile global banking and, ultimately, economic growth model. If we fail to reform fundamentally the financial system and the position of the largest systemically relevant firms in that system, we will undermine one of the most basic mechanisms of any market economy, namely that of punishing failure. What is more, we will – to quote Mervyn King – bequeath to future generations a serious risk of enduring another crisis even worse than the one we have just experienced. 16 My biggest concern is that a future crisis on a larger scale could create such an immense regulatory and protectionist  16  Speech by Mervyn King to Scottish business organisations, Edinburgh, 20 October 2009. BIS Review 145/2009  7  backlash, that the very market-based system, on which so much of our current welfare is based, will be threatened. In that sense, it is in the long-term interest of banks themselves to support the far-reaching efforts to make the financial system more resilient. If our reform efforts falter, we risk having to look back one day at the vast and unprecedented stabilisation efforts undertaken by so many governments and central banks and conclude that they were short-sighted.

One of the explanations for these insufficient holdings of liquidity was that the stress scenarios considered by banks were far too optimistic. While secured funding remained the most stable source of refinancing, it was much less stable than banks and regulators had assumed. 11 Liquidity problems at individual banks have imposed considerable stress on the entire international system. To prevent a destabilization, central banks had to provide massive liquidity support. In some countries, this support has been provided against collateral of poor quality and even on an unsecured basis. As in the area of capital, the Basel Committee is moving rapidly towards an international liquidity standard for banks. This standard should incorporate the following basic features to be effective: The standard should reflect an adverse scenario, including a significant loss of confidence from depositors and a severe disruption of secured funding. Moreover, the standard should require banks to hold a buffer consisting of assets whose liquidity and value is robust to massive disruptions in the financial markets. Overall, the standard should materially improve banks’ liquidity positions and make their funding more robust. In Switzerland, liquidity requirements for the big banks are in the process of being comprehensively revised. In line with the features I have just outlined, the new regime will ensure that the big banks are able to cover their potential liquidity needs in the event of a widespread loss of market confidence. The new regulation will enter into force in spring 2010.
Stable inflation expectations can thus lead to inflation not varying continuously with the output gap which paradoxically can make the conduct of monetary policy more difficult. In recent years, it has been difficult to find clear and reasonable correlations between the demand situation and inflation for Swedish data. The monetary policy decisions are based on forward-looking assessments of inflation and here the assessment of the relationship between the expected output gap and inflation is an important determining factor. A lower correlation could depend on inflation expectations having stabilised in recent years. Individual companies can, for instance, hold back price increases even if resource use has increased, if they believe that their competitors are not intending to raise their prices. As long as inflation expectations are not affected, prices will not be changed. If the forward-looking inflation assessments that serve as the basis for monetary policy decisions, assume, for instance, that the correlation between growth and inflation will continue to be as low as has been observed, this can result in changes in the output gap not leading to any immediate monetary policy response. The risk is that inflation expectations will then accelerate and that inflation will increase. In the same way, prices may be slow to respond in the case of falling resource use. In other words - if monetary policy does not act as expected on fluctuations in resource use, the correlation between growth and inflation can again increase.

So, what could have happened is that market participants, trusting central banks’ forward guidance that policy rates would stay at very low levels for an extended period, were increasingly pricing exchange rates on the basis of information about how policy would evolve in the more distant future. That is, with short-term rates broadly stable, the weight investors attached to the 8 4 / 11  BIS central bankers' speeches  expected future path mechanically increased – just as theory would predict.8 Term structure models can therefore provide compelling evidence that exchange rates remain deeply connected to monetary policy also when interest rates are at, or close to, the effective lower bound, even if interest rate differentials per se suggest a structural break in the relationship. Asset purchases and exchange rates But the right-hand chart also suggests that this is not the full story. A clear break emerged in late 2013. And that break is likely related to the second policy instrument I mentioned before, namely asset purchases. Although asset purchases, by removing duration risk from the market, act primarily on the term premium, they also entail a strong signalling channel, in particular at, or close to, turning points. For example, the Federal Reserve’s decision to start tapering in December 2013 triggered an appreciable increase in future expected short-term rates. You can see on the right-hand side that the ten-year expectations component differential vis-à-vis the euro area widened by more than 50 basis points in just a few months.