samchain/econo-pairs-v1 huggingface dataset:
12 See ‘[De]Globalisation and Inflation’, speech by Mark Carney given at the 2017 IMF Michel Camdessus Central Banking Lecture, 18 September 2017. 10  All speeches are available online at www.bankofengland.co.uk/news/speeches  10  private sectors sought to reduce their pace of borrowing. These shorter-term factors pushed the equilibrium interest rate in the UK (and other advanced economies) into negative territory, prompting the adoption of unconventional policies following the crisis. The fading of the headwinds from the crisis implied that some of the fall in the equilibrium rate would gradually unwind, though the structural forces were thought likely to persist for many years to come. As a result, the MPC judged that the pace of Bank Rate increases consistent with eliminating slack and keeping inflation close to the target would be gradual and that, even once spare capacity had been absorbed, the appropriate level of Bank Rate was expected to be materially below the pre-crisis average of 5%. Out of that assessment came the guidance that future rises in Bank Rate were expected to be “limited and gradual” – a phrase so often repeated it became part of the monetary policy furniture. As intended, the MPC’s “limited and gradual” guidance dampened interest rate volatility and reduced the correlation between interest rate volatility and economic uncertainty. Both developments increased the degree of monetary policy stimulus at a given policy rate, thereby reinforcing the recovery during turbulent times. GDP grew robustly over this period, supported by strong consumer and business spending against a backdrop of continued fiscal consolidation.

However, the actual trade-off that is struck will be importantly influenced by MPC members’ views of both the nature of the shocks hitting the economy and the transmission mechanism of monetary policy.17  As the remit states: “In exceptional circumstances, shocks to the economy may be particularly large or the effects of shocks may persist over an extended period, or both. In such circumstances, the Monetary Policy Committee is likely to be faced with more significant trade-offs between the speed with which it aims to bring inflation back to the target and the consideration that should be placed on the variability of output.” 17 For more detail, see ‘Lambda’, speech by Mark Carney at the London School of Economics, 16 January 2017. 16  15  All speeches are available online at www.bankofengland.co.uk/news/speeches  15  Charts 10a and 10b demonstrate how the expected trade-off evolved in successive MPC forecasts since the referendum.
Norwegian money market premiums are expected to edge down ahead in line with premiums in global markets. BIS Review 37/2009  3  The global downturn led to a marked fall in prices for oil and other commodities through autumn 2008. Oil prices have for a period now hovered around USD 45 per barrel. Oil futures prices have fallen and indicate an oil price of around USD 55 per barrel in 2010. Other commodity prices that are important for the Norwegian economy have also fallen sharply. Metal prices are particularly sensitive to cyclical developments. Futures prices for a selection of raw materials indicate unchanged or moderately rising prices in the next few years. Many countries that have been hit by the economic setback will see an improvement in their terms of trade and growth in their disposable income. 4  BIS Review 37/2009  The current downturn followed a period of very high global and domestic economic growth, supported by favorable trading conditions. Few countries benefited more than Norway from the economic upturn, which drove up prices for oil, gas and other export commodities. At the same time, an increasing number of cheap consumer goods were imported from new EU countries and from Asia. Norway’s real disposable income increased by more than 40 per cent from 2002 to 2008, more than that of any other western country. But our terms of trade are now deteriorating.

Banks have become more vulnerable to distortions in the credit markets. Historically, our 4 banks primarily obtained funds through deposits by households and enterprises. In recent  1  Folketrygdfondet will manage the new Government Bond Fund. 2  The Government has increased the capital of Kommunalbanken Norway (the local government funding agency), it has increased the scope of GIEK (the central government export credit agency) and Innovation Norway, and has offered state loans to Eksportfinans Norway (the credit institution for export financing). 3  Figures for banks’ equity capital before 1918 are based on: Jan Tore Klovland (2007): “A reconstruction of the balance sheets of savings banks in Norway 1822-1875” and “A reconstruction of the balance sheets of commercial banks in Norway1848-1900” in Øyvind Eitrheim, Jan Tore Klovland and Jan F. Qvigstad (Ed.) (2007): “Historical Monetary Statistics for Norway – Part II” Norges Bank’s Occasional Papers, No. 38, Oslo. Statistics Norway is the source for figures from 1919 to 1995. Norges Bank is the source for figures from 1996. 4  Figures are taken from the sources in footnote 3 and Hege Imset Matre, H. I. (1992): Norske forretningsbanker 1848-1990: En tilbakeføring av forretningsstatistikken (Norwegian commercial banks 1848-1990). Report No 41 from the research programme Det nye pengesamfunnet. 2  BIS Review 37/2009  years, banks have borrowed in both domestic and foreign markets. When credit markets dried up, this proved to involve high liquidity risk for banks.
And the required adjustment still has a long way to run – few of the largest banks in the United Kingdom managed to reduce their leverage ratios through 2008, which remain at historically high levels. Third, interconnections between institutions create potential fragilities across the system, as we saw last September. Fourth, the risks associated with large-scale proprietary trading are probably harder to control in limited liability companies. So we need instruments to prevent the size, leverage, fragility and risk of the financial system from becoming too great. The resulting “macro-prudential” toolkit will contain a number of instruments to reduce risk, both across the system and over time. It must not be put together in a hurry. And I share the concerns of many of you that we are a long way from identifying precise regulatory interventions that would improve the functioning of markets. As far as individual banks are concerned, we face some uncomfortable choices about the structure and regulation of our banking sector. If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give.

So there is a limit to the scope of the Bank’s activities in this area. The success of the policy is not to be judged by the increase in bank lending. Its aim is to increase the money supply. There are already tentative signs that the programme is beginning to have beneficial effects with the growth rate of broad money picking up. So there are certainly grounds for believing that the rapid falls in activity are coming to an end. But there are some equally solid reasons for believing that the path to full recovery could be protracted. The most obvious is that the supply of bank lending to companies and  BIS Review 76/2009  1  households remains constrained. The stock of bank lending to non-financial companies has been falling in recent months, and household lending has been flat. Part of this undoubtedly reflects weak demand in the face of the recession. But the evidence from prospective borrowers, and the terms on which lenders are willing to extend credit, suggest that banks’ ability to finance a sustained recovery remains impaired by low levels of equity capital. Stress tests designed to assess the viability of banks are very different from tests of the capacity of the banking system to finance a recovery. Investors continue to demand high returns to finance banks. Put bluntly, market data on credit spreads imply that some banks are viewed as a worse credit risk than some of their customers.
The first is the greater income and consumption volatility that have been observed in emerging markets, both in terms of the level and in terms of growth relative to developed economies. And the second is the fact that economic agents in  1  The views expressed in this paper are those of the authors and do not necessarily represent those of the Bank of Thailand or Bank of Thailand policy. I would like to thank Piti Disyatat, Ashvin Ahuja, Sarawan Angklomkliew, Jaturong Jantarangs, Nawaporn Maharagkaga, Don Nakornthab, Kobsak Pootrakool, Mathinee Subhaswadikul and Supradit Tangprasert of the Bank of Thailand for their substantial contribution to the drafting the original paper. BIS Review 98/2008  1  emerging markets face greater limitations in the ability to smooth consumption in response to shocks. The empirical evidence from two recent studies are summarized in Table 1. As documented by Aguiar and Gopinath in 2007, consumption is around 40 percent more volatile than income at business cycle frequencies for emerging markets, while the ratio is less than one for developed economies. The same is true when comparing relative volatility in growth rates of consumption and income. A study by Kose, Prasad, and Terrones in 2005 also shows greater income and consumption volatility in emerging markets relative to developed economies. Such heightened volatility in macroeconomic outcomes undoubtedly has adverse implications for welfare.

A few examples of structural factors include a demographic shift from working-age to older population, which swells up the volume of pension funds that need to fulfill their obligation to retirees; the rise of sovereign wealth funds in the era of high international reserves under rigid exchange rate arrangements; technological innovation and the decline in telecommunication, transport and other financial transaction costs from credit risk transfer mechanisms; and, capital account liberalization that have over the years eliminated a significant degree of cross-border financial friction. At the same time, the liquidity glut is also due in no small part to accommodative monetary policy in advanced economies, whether one looks from the angle of low interest rates or high money growth. BIS Review 98/2008  5  the foreign exchange market. Both of these actions are accommodative from a monetary policy sense and tend to sow the seeds for inflation down the road. And in the case where capital inflows are persistent, the flows may even induce authorities to make use of prudential measures, which can range from credit policy to capital account restriction on short-term inflows. The core issue facing emerging market central banks in the short run, therefore, is how best to contain financial vulnerabilities that accompany the volatility of short-term capital. On this issue, when the challenge is on the side of managing capital inflows, there are three key decisions that emerging market policymakers must face in the short term.
The breakdown suggests that, by contrast with the spillovers we saw in the previous chart, monetary policy shocks seem to have contributed comparatively little to exchange rate movements in the first half of 2014.14 6 / 11  BIS central bankers' speeches  Instead, an exogenous shock, which can be interpreted in the context of this discussion as a time-varying risk premium shock, appears to have put mainly downward pressure on the dollar. To the extent that risk premium and bond term premium shocks are driven by the same fundamentals, this would be consistent with the view that the signalling and portfolio rebalancing channels were sending conflicting signals. This train of thought is in fact very similar to the view put forward by Charles Engel and Kenneth West on the relationship between risk premia and the exchange rate.15 They saw the dollar depreciation in 2007 as evidence of investors thinking “this is a US crisis”. And they saw the dollar appreciation in 2008 as a change in this thinking to “well, this is actually more of a global crisis”. As with the events of 2007–08, what ultimately caused the initial resilience of the dollar and the sharp fall in term premia in 2014 will remain a matter of speculation. Factors other than the actions of the Federal Reserve and the ECB are likely to have contributed to these developments. But that is not my point.

My point is rather that it is not surprising that central bank asset purchases may break with some of the regularities we have become used to. The reason is that asset purchases are monetary policy actions that can be anticipated by market participants, just like changes in key policy rates. Unlike conventional monetary policy, however, they have direct implications for the expected supply of and demand for internationally traded bonds and, hence, for the level of the exchange rate that, all other things being equal, clears the resulting capital flows. This may, at times, break the link between future expected rates and the exchange rate. This is clearly visible when we look at slide 6. The chart is based on the same methodology as the spillover chart on slide 4, but it illustrates how much, on average, of the variance in long-term bond yields in one country can be explained by the other country’s term premium and expected short-term rates respectively. 7 / 11  BIS central bankers' speeches  You can see that the moment short-term yields hit the zero lower bound, spillovers in bond markets by and large reflected term premia movements – in both directions. These spillovers may pull the exchange rate away from the path implied by expectations about the future shortterm rate. The extent of the decoupling, in turn, will depend on the expected direction, persistence and degree of international spillovers – something that is inherently difficult to project and price.
These purchases, far higher than those in Europe, have been conducted with the express purpose of contributing to easing monetary and financial conditions. The Bank of England has, in this respect, been closer to the Federal Reserve than to the ECB. There have therefore been notable divergences in the use of unconventional instruments between the ECB, on one side, and the Federal Reserve and the Bank of England on the other. BIS central bankers’ speeches  3  These divergences reflect the characteristics of the respective financial systems, in particular the predominant role of banks in the euro area compared with the greater significance of capital markets in the United States and the United Kingdom. However, they also respond to a different perception of the risks that a central bank can and should assume in terms of its credibility and reputation. Widespread opinion has it that the Fed’s strategy has involved some blurring of the boundaries between monetary, fiscal and financial stability policies. The ECB, on the other hand, has kept a greater distance from these boundaries because the joint existence of a single central bank with the fiscal and financial authorities of 17 independent countries (18 as of today and, possibly, 19 as from January) poses particular challenges and difficulties. In sum, I have focused on structural aspects of monetary policy. I believe, nonetheless, that some brief thoughts on the monetary policy decisions adopted by the ECB governing Council last week would not go amiss.

In particular, the Bank for International Settlements had maintained since the early 2000s that, in specific circumstances, central bank conduct in the face of severe risks to financial stability would have to be pre-emptive and not only reactive. Simply put, the damage wielded by a financial crisis might be so great that some price stability slippage in the present would be  BIS central bankers’ speeches  1  warranted in exchange for preventing a future, more serious deviation that might prove more difficult and costly to reverse. The Bank for International Settlements also asserted that the combination of a price stabilityoriented monetary policy and a merely micro-prudential supervisory policy did not ensure the stability of the financial system as a whole. In this connection a third tool was needed: a macro-prudential supervisory policy. While it is still too early to draw all the economic policy lessons arising from our experience of this crisis, I believe certain necessary changes can be discerned. Among these, the need to pursue macro-prudential policies is one of the most evident implications. Macro-prudential policy The crisis has demonstrated that the previous combination of monetary policy and microprudential policy is insufficient both for shoring up the stability of the financial system as a whole and for ensuring, in the event of crisis, that the impact on the real economy is limited. To achieve these goals a macro-prudential policy is also needed, and it must be equipped with new objectives and instruments.
This being the PPE society, I am sure you know the standard answer: money, as you learn on an economics course, has to be all of three things:   A means of payment – everyone has to be able to buy things with it;    A store of value – everyone has to be able to hold their wealth in it; and    A unit of account – everyone has to use it as a common measure of the economic value of things. This is as good a practical description as you can get, though defining the boundaries is not easy, as monetary statisticians know. 3  It is, essentially, a description of what money does rather than what money actually is. Mill and Friedman describe money as a machine but perhaps a better description is a technology. But it is not a physical technology – metallic, electronic or otherwise, though its embodiment may take any 4  number of physical forms. It is in the end, a social convention or what has been called a ‘social technology’, by which we create, hold, use and measure claims on each other. 5  3  For a discussion, see ‘Proposals to modify the measurement of broad money in the United Kingdom: a user consultation’ by Burgess, S and Janssen, N. Bank of England Quarterly Bulletin, 2007 Q3 4 The pacific island of Yap historically used carved stones as a form of money.

Table 1 shows peak levels of the primary fiscal deficit in the UK during the global financial and Covid crises. The degree of fiscal support has plainly been materially larger – more than twice as large. And relative to the size of the economy’s output gap, which is smaller than at the time of the global financial crisis, this degree of fiscal support has been larger still and multiplies of the output gap. Table 1: Peak Fiscal Deficits in the Global Financial and Covid Crises Peak primary balance (a)  Peak output gap (b)  Global Financial Crisis  -8.3  -4.2  Covid Pandemic  -18.0  -3.1  Source: OBR and Bank of England Note: (a) % of GDP. (b) % of potential GDP. Fiscal numbers for pandemic are based on OBR November 2020 forecast for FY 2019-20. The appropriate degree of fiscal support to close the output gap has recently been a source of debate in the United States. 21 There, the fiscal response is prospectively larger than in the UK, and the output gap smaller, meaning the upside risks to demand and inflationary are likely to be larger. 21  For example, see Olivier Blanchard here. 21  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  21  (e) Psychological Scarring A final potential difference from the past concerns the degree of psychological scarring of risk appetite among household and companies as a result of crisis.
Most importantly, for loans that are priced against the sovereign yield curve nominal rates are now extremely low across nearly all euro area countries, with real rates lower still. Our purchases of non-sovereign public assets are also reinforcing a revival in credit, albeit through different channels. For example, our purchases are effectively lowering the funding costs of 2  BIS central bankers’ speeches  supranational lending institutions, such as the European Investment Bank, and of national development agencies, such as KfW in Germany. And we continue to broaden our universe of eligible agency bonds , because our aim is not to become the largest creditor on the euro area. Second, our programme is creating portfolio rebalancing effects as investors are displaced across asset classes – affecting risk preferences – and across jurisdictions – affecting the exchange rate. This process has multiple transmission channels to real economy but one key one is through banks: on the liability side, portfolio rebalancing reduces the cost of market debt for banks, and on the asset side, it increases the opportunity cost of holding henceforth still risk-free securities, such as government bonds, over extending loans to the real economy. Third, asset purchases have a strong signalling effect. They send a powerful signal that we will not allow price stability to be jeopardized, which helps re-anchor inflation expectations and lower real interest rates.

BIS central bankers’ speeches  3
In yesterday’s tender offer, 30 of the 500 million dollars were awarded, which is evidence that the international liquidity problems are being properly managed by banks without having to resort to our credit lines. Notwithstanding, the Central Bank of Chile will continue to monitor the external financial conditions in order to mitigate the domestic impact of potentially bigger complications. From the inflationary standpoint, our latest Monetary Policy Report assumed that the international scenario would not contribute in any significant manner to reduce inflation. However, our risk scenario also assumed that a further deterioration of the world economy could not be ruled out, and we are seeing it today. Most likely, in the near future world growth projections will be significantly adjusted downward, helping to reduce inflationary pressures  1  As a function of the benchmark basket of the investment portfolio. BIS Review 123/2008  3  in the medium term. In addition, commodity prices have dropped recently, including a sharp reduction in the prices of oil and grains, especially wheat. Our objective and commitment is that annual inflation gradually converge, over a two-year period, to its 3% target, so monetary policy will continue to be oriented to complying with said objective. The potential inflationary consequences of events occurring internationally will be duly pondered. We have in place a flexible monetary policy that allows for gradual adjustments to both changing international conditions and domestic developments, strongly committed with inflation control, because low inflation ensures the necessary stability for sustained economic growth.

But if severe shocks hit the economy, other areas of economic policy must play a key role. When the pandemic hit Norway, we cut the policy rate to zero. At the same time, fiscal support measures were implemented on a scale unprecedented in modern Norwegian history. The aim was to cushion the downturn and support households’ and firms’ income. Chart 6 Economic downturns are countered by rate cuts Norges Bank policy rate. Percent 1.75  1.75  1.5  1.5  1.25  1.25  1  1  0.75  0.75  0.5  0.5  0.25  0.25  0  0  –0.25  2015  2016  2017  2018  2019  2020  2021  2022  –0.25  Source: Norges Bank  The actions taken could not, however, prevent a situation where a large number of workers were suddenly out of work. The risk that the pandemic would leave lasting scars on the labour market was an important reason why we kept the policy rate at a historically low level for more than a year. Now that we can look at the years 2020 and 2021 in the rear view mirror, we can see that employment in Norway picked up more quickly than expected (Chart 7). Employment exceeded the pre-pandemic level in autumn 2021, and the same degree of monetary policy stimulus was no longer needed. We have now raised the policy rate twice, and we have signalled a further rise.