samchain/econo-pairs-v1 huggingface dataset:
Since these market-based measures were affected by risk illusion, it is reasonable to assume the MPC suffered that same illusion. Just like the students in the Asch experiments, MPC yielded to the wrong answers given by other financial actors. The MPC were looking for their keys under the wrong lamppost. It is too soon to tell whether any collective blind-spots remain. But compared with the precrisis period, the Bank today has two extra pairs of policy eyes through the PRA and FPC. Joint meetings between the MPC, FPC and the PRA Board now take place. These help strengthen the committees’ peripheral vision and are a safeguard against groupthink. As for economic forecasting, this is the most inexact of sciences. The Bank has already undertaken an external review of its forecasting procedures. 62 And it also has taken a sequence of measures to improve this process and the transparency around it. 63 This has included publishing more information on forecast inputs and outputs. This is progress. My own view is that improvements to the Bank’s forecasting process have some considerable distance still to travel. Since the crisis, the Bank’s forecast errors for output and inflation, like those of external forecasters, have tended to be one-sided and serially  61  This is part of a larger, on-going research project led by Stephen Hansen (UPF), Michael McMahon (Warwick) and Andrea Prat (Columbia University). 62  Stockton (2012).

37 In the setting of monetary policy, the Bank’s role from the end of the second world war through to the 1990s was as implementer, not decision-maker. The Bank had little, if any, independence in the setting of monetary targets or instruments. That changed progressively in the 1990s and decisively after 1997. Through the Bank of England Act 1998, the Bank was granted operational independence for the setting of monetary policy in the UK, to meet an inflation target set by government. Specifically, monetary policy came to be set by a nine-person Monetary Policy Committee (MPC), meeting monthly and comprising five Bank “internals” and four “externals”. 38 In the light of the crisis, the UK’s policy framework has been further changed. The Financial Services Act 2012 vested the Bank with further responsibilities, creating a new 10 person Financial Policy Committee (FPC), meeting quarterly to execute macro-prudential policy. The  31  Asch (1951). 32  Janis (1972, 1982). 33  Hughes and White (2010). 34  Kaplan (1964). 35  Tuckett (2011). 36  Janis (1982). 37  Capie, Goodhart and Schnadt (1994). 38  King (2010), Lambert (2005). BIS central bankers’ speeches  5  FPC sets regulatory policy to ensure the stability of the financial system as a whole. Like the MPC, it comprises both internals and externals. 39 The Financial Services Act also gave the Bank responsibility for micro-prudential supervision – ensuring the safety and soundness of individual financial firms.
When economic agents also understand Norges Bank’s response pattern in connection with events in the economy, market expectations concerning the interest rate will change as a result of economic news and to a lesser extent as a result of Norges Bank’s interest rate decisions in themselves. Norges Bank reduced the key rate at the monetary policy meeting on 17 September 2003. Short-term interest rates showed little change since the interest rate decision was expected by market participants. At the same time, the Bank changed its bias concerning future inflation. At the monetary policy meeting in August, the Bank stated that, with an interest rate of 3 per cent, the probability that inflation two years ahead would be lower than 2½ per cent was greater than the probability that it would be higher. Following the meeting on 17 September, the Bank stated that, with an interest rate of 2.50 per cent, the probability that inflation two years ahead would be higher than 2½ per cent was the same as the probability that it would be lower. Expectations concerning future short-term interest rates rose slightly, probably as a result of the change in Norges Bank’s bias concerning future inflation. This was perceived as new information by market participants. The yield curve was therefore a little steeper following the monetary policy meeting. 4  6  Svensson, L.E.O. (September 2002), "Monetary Policy and Real Stabilization". Princeton University  BIS Review 46/2003  The market’s expectations concerning future short-term rates can be reflected in forward rates.

When the interest rate falls, it is less profitable for households to save, and they will therefore increase their consumption now rather than wait until later. Borrowing also becomes less costly, with an associated rise in investment. Higher demand in turn leads to a higher rise in prices and wages. Lower interest rates make it less attractive to invest in NOK and less attractive for Norwegian enterprises and households to raise loans in other currencies. Lower interest rates will therefore normally result in reduced capital inflows and a weaker krone. This makes imported goods more expensive. In addition, a weaker krone increases activity, profitability and the capacity to pay in the internationally exposed sector. The equilibrium interest rate and the neutral interest rate are closely related concepts. The neutral interest rate is the rate that does not in itself result in an increase or a reduction in price and cost inflation in the economy in the course of a business cycle. An assessment of whether interest rate setting is expansionary or contractionary, involves comparing short-term market rates with the neutral rate. A real interest rate in the interval 3 – 4 per cent is often regarded as neutral in economies such as the Norwegian economy. I will revert to a quantification of this level later. In the longer term, the interest rate level influences capital accumulation in the economy and the potential for economic growth. The equilibrium interest rate is the rate that ensures that capital accumulation corresponds to saving in the economy.
Rising share prices, for instance, tend to stimulate private consumption and business investment and vice versa. It follows that stock market trends are also relevant for monetary policy. So there are a number of good reasons for a central bank to take a closer look at and reflect on how the financial system functions. In recent decades the financial system in most western countries has undergone a notable transformation. One feature of this development is disintermediation, a process whereby a larger proportion of the funds involved in saving and financing flow directly to the financial markets instead of being routed via the banks’ traditional lending and deposit operations. The general public’s heightened interest in share investment, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households’ financial assets. In the same period, moreover, and not least in recent years, it is evident from your Association’s regular surveys that share ownership in Sweden has spread very rapidly. The stock market displays a number of interesting phenomena. In recent decades the real return on shares in Sweden has been almost three times higher than the long-term trend. In this period there have also been a number of dramatic developments, for instance the stock-market crash in 1987, the long downward period in the early 1990s, the mini-crash in 1998 and the IT bubble at the turn of the century. All this raises a variety of interesting issues.

Today I shall confine my brief remarks to some aspects that have to do with the fact that shares now weigh considerably more heavily in household financial portfolios than was the case thirty years ago. As I just said, this development has coincided with a return on shares that has been very high historically. Sooner or later, however, there will be a normalisation, more or less in line with what has happened in the past. This is so because the return on shares is ultimately determined by corporate profits, which are bound up in turn with economic development in general. GDP represents the sum of all profits and wages in the economy and it is hard to see how an annual real growth rate of around 2 per cent could result in a development of corporate profits that warrants a real annual return on shares that averages around 20 per cent. A more “normal” combination of stock-market returns and risks makes saving in shares more troublesome than it has been with the good returns in the past twenty years. The financial system will need to do more than before to help households manage the risks associated with stock markets. The question is how this change is likely to occur. BIS Review 5/2002  1  Greatly increased household saving in shares One factor behind the growing interest in share investment in Sweden in the late 1970s may have been the low valuations initially.
30  All speeches are available online at www.bankofengland.co.uk/speeches  30  Chart 24: Conditional gender wage gap under specification (8) Difference in lnpay 0.05 0 ‐0.05 ‐0.1  Ethnic minority male vs white male  ‐0.15  Ethnic minority female vs white male  ‐0.2 ‐0.25  Gender pay gap  ‐0.3 ‐0.35 1994‐1998  1999‐2003  2004‐2008  2009‐2013  2014‐2019  Source: ONS Labour Force Survey and Bank of England calculations. Note: A negative pay gap in this chart indicates that the sub-group earns less than white men. Just because a pay gap can be explained by a set of individual and work-specific characteristics does not mean it is necessarily either reasonable or justifiable. Differences in these characteristics may themselves suggest inequalities or biases that need rectifying. It is interesting to examine what our regression results tell us about the relative importance of various factors in determining pay gaps. To assess this, we run separate regressions for white men, white women, ethnic minority men and ethnic minority women as the effect of various factors on pay is not homogenous for these groups. Some key findings include: (a)  Education. The “penalty” for having no qualification, compared to having a degree, is on average  39%. That penalty exists irrespective of gender or ethnicity. The penalty is not equal across these groupings, however. This penalty is highest for white women, at 41%, and lowest for ethnic minorities at 33%. The story is slightly different when we compare degrees with “other” qualifications.

The results are more interesting if we interact having a child under 2 with a variable capturing full or part-time employment. While for white men, the effect on earnings is still positive, for women the effect of having a child under 2 is only positive for women working part-time. For women working full-time, having a child under the 2 reduces earnings by around 6%. This suggests women in full-time jobs experience a ‘maternity penalty’, whereas men and women in part-time employment do not. (e)  Financial sector. Compared to earnings in the benchmark sector (agriculture), most sectors have  higher pay. The sector with the highest relative pay is finance, with a 46% premium relative to the benchmark. This premium is notably higher for men than women (58% versus 32%), although it is highest for ethnic minority men (76%). These are large pay gaps, bearing in mind these estimates take account of differences in the individual characteristics of the workers, such as age and educational achievement. (f)  Born in the UK. Being born in the UK, on average, leads to slightly lower earnings than not. However, this average masks sharply opposing trends among whites and ethnic minorities. Being born in the UK and white reduces earnings by around 7% compared with whites born outside the UK. This largely reflects the effects of those with “other qualifications”, and the fact that white people born outside the UK tend to be more educated.
Simon M Potter: Discussion of “Evaluating Monetary Policy Operational Frameworks” by Ulrich Bindseil Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, at the Federal Reserve Bank of Kansas City Economic Symposium “Designing resilient monetary policy frameworks for the future”, Jackson Hole, Wyoming, 26 August 2016. *  *  *  Accompanying charts can be found at the end of the speech or on the Federal Reserve Bank of New York’s website. My thoughts on implementation issues have been enriched by numerous conversations with colleagues, particularly around the current longer-run efforts in the Federal Reserve to examine implementation. Recent dialogue with Antoine Martin was particularly helpful in producing this discussion. Introduction: what do we still need to know to evaluate operational frameworks? Thank you for giving me the opportunity to discuss Ulrich Bindseil’s excellent paper, which builds on his considerable body of work in this field and provides an insightful discussion of monetary policy implementation. What makes Ulrich’s contributions notable is the unique combination of academic rigor and practical insights he brings to the topic. By distilling the key elements of his previous research into an accessible form, this article is a useful read for anyone who wants to gain a deeper understanding of the economics of monetary policy implementation, including practitioners of central bank market operations, central bank researchers, and academics.

In some countries, like the U.S. and the U.K., stigma appeared to be sufficiently strong that banks did not use the central bank’s liquidity facilities at their disposal as much as would have been socially desirable. 12 During the crisis, the Federal Reserve encouraged banks to borrow at its discount window, to little effect. 13 As can be seen in Figure 5, much activity in the fed funds market took place at rates above the discount rate. 9  Another way to reduce the balance sheet cost faced by the banking sector is to allow nonbanks to hold some of the central bank’s liabilities directly. For example, every dollar invested in the Federal Reserve’s overnight reverse repo facility decreases the amount of reserves held by banks and, thus, the aggregate size of the banking system’s balance sheet by a dollar. 10  Keister (2016) shows that it is optimal to commit to providing liquidity to a bank that faces a run. Moral hazard is addressed ex ante, by setting a Pigouvian tax that gives incentives for the bank to invest in the optimal amount of liquid assets. The tax can be interpreted as liquidity regulation and supervision. Goodfriend and Lacker (1999), however, argue that neither constructive ambiguity nor extended supervisory and regulatory reach can effectively overcome the fundamental forces that cause a central bank to lend. They propose that the only way for a central bank to credibly limit lending is for it to build a reputation over time for restraining lending.
1/10  BIS - Central bankers' speeches  Economic activity The euro area economy has stagnated in recent months. As in the fourth quarter of last year, it shrank by 0.1 per cent in the first quarter of 2023, amid a drop in private and public consumption. Economic growth is likely to remain weak in the short run but strengthen in the course of the year, as inflation comes down and supply disruptions continue to ease. Conditions in different sectors of the economy are uneven: manufacturing continues to weaken, partly owing to lower global demand and tighter euro area financing conditions, while services remain resilient. The labour market remains a source of strength. Almost a million new jobs were added in the first quarter of the year and the unemployment rate stood at its historical low of 6.5 per cent in April. The average number of hours worked has also increased, although it is still somewhat below its pre-pandemic level. As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures, which would call for a stronger monetary policy response. Fiscal policies should be designed to make our economy more productive and gradually bring down high public debt. Policies to enhance the euro area's supply capacity, especially in the energy sector, can also help reduce price pressures in the medium term. The reform of the EU's economic governance framework should be concluded soon.

We look at [HICP] stripped, super stripped, PCCI. There's a whole variety of the prices and the inflation that we look at, and we need to see that. We need to be confident that it is heading down. For the moment, we have some of those measurements declining a bit, some of those sort of stable and others still going strongly. The third component is the strength of transmission, which we measure at each and every step of the way from the market rates, bond prices, credit by banks, bank funding. And then to the economy, where we refer to the 4.4% and 3.4% [April bank lending rates to] corporate and households, because that's how it is transmitted. And ultimately to inflation. So, that's the path that we want to see delivering so that we head towards our target. That's what we have done, that's what we will do and we will stick to that methodology. I was wondering: how alarmed are you about the upward revision to the 2025 inflation outlook? Does it mean that the 3.75% terminal rate that was generally expected – at least until recently – isn't going to be enough? Then secondly: you've alluded to the strength of the labour market and the impact that wages are having on inflation. Do you think you can achieve the 2% inflation target with unemployment remaining as low as it is now? Or does it have to go up? So, your first question referred to the core inflation revision. We revised actually all three.
They also make an alternative calculation of the effects of monetary policy on unemployment, based on the deviation in CPIF inflation from 2 per cent and reach a figure of around 12,000 unemployed on average. But the main message in their analysis is that calculations of this type must necessarily be based on a number of more or less realistic assumptions of how the economy functions. It is therefore important to take the figures produced with a fairly large pinch of salt.5 Recent criticism As I noted in my introduction, in addition to the criticism of the historical attainment of the inflation target, there has also been criticism of the policy conducted in recent years. This claims that the Riksbank has considered factors in its repo-rate decisions that should not have been considered. The main focus of this criticism has been that the Riksbank has concerned itself with household debt and developments on the housing market and thus not conducted a sufficiently expansionary monetary policy. Sometimes it has even been claimed that the Riksbank has introduced a new target that contravenes its mandate and that the Riksbank has begun to conduct "housing policy". 4  Svensson (2013c). 5  Assar Lindbeck, although having preferred a lower interest rate than the one the Riksbank decided on, also argues that this type of calculation should not be taken “too seriously”, as it is based on assumptions that are “too uncertain” (Dagens Industri, 2013a).

Let me now move on to the next question, which concerns the actual size of the risks linked to household debt in Sweden. It is true that there are estimates suggesting that the housing market in Sweden is not overvalued. Some of these estimates have been made by the Riksbank itself. This could mean that the high level of debt among Swedish households is not such a large problem, either. But there are also estimates that suggest an overvaluation.17 And when there is so much at stake, there are good reasons, as I see it, to be particularly cautious. After all, it was not the case that the corresponding estimates prior to the crisis showed any impending problems in the countries that have now been hit so hard. As Stefan Gerlach, Deputy Governor of the Central Bank of Ireland, noted recently, it is always easy to gain support for the opinion that housing prices are currently correctly valued – even if this soon proves to be incorrect.18 In Ireland, the opinion immediately prior to the crisis was that housing prices were not abnormally high and that the banks were stable and wellconsolidated. I am convinced that this was how most countries, which have suffered problems, viewed their situation.19 Nor does the size of household wealth appear to have had any decisive significance for the impact of the crisis. The countries that have been hit hardest include ones with both stronger and weaker wealth positions than Sweden (see Figure 8).
And that growth shortfall is in spite of the fact that global growth has strengthened more than expected in the May 2016 MPC forecast. The biggest risk I see to that outlook for demand is around the resolution of the current uncertainty about our eventual trading arrangements and the path that will be followed to reach them. Were that uncertainty to be lifted, I can see a case for why UK whole economy demand could grow more strongly, more in line with, for example, recent manufacturing indicators. Equally, were uncertainty to persist at current levels or even increase further, I could see a case for demand growth, and in particular investment growth, being weaker. The reaction of the supply side of the economy since the referendum is more open to interpretation and given the uncertainties is something informed people can have divergent views on. The combination of weak investment, strong growth in employment, weak wage growth and low productivity growth (Slide 7) lends itself to two potential explanations – and they are neither mutually exclusive nor exhaustive. In either case the sign of the response of key variables is the same, making it difficult to pick between them, but the implications for the outlook for spare capacity and inflation differ.

While those who say it is not an important source of uncertainty fell from 23% to 13% over the same period. Brexit has an important bearing on the Bank’s pursuit of monetary and financial stability, and it is taking steps to help ensure the necessary adjustment is as smooth as it can be. The Prudential Regulation Authority is engaging proactively and intensively with banks and insurers to ensure their plans are robust to the full range of potential outcomes. The FPC is focussed on its statutory responsibility of identifying and monitoring and taking action to reduce risks. The MPC’s focus has been on balancing the trade-off, as required by its remit, between the speed at which inflation returns to target, and the support that monetary policy provides to jobs and activity during the adjustment process. In the Markets and Banking areas of the Bank, for which I have direct responsibility, we are undertaking a series of initiatives which, although not directly related to Brexit,  2  All speeches are available online at www.bankofengland.co.uk/speeches  2  will help ensure stability, improve effectiveness and enable innovation in key parts of the UK’s financial system through this period of challenges and opportunities. It is the work of the MPC and of the Markets and Banking areas that I would like to focus on today. In particular the role they play in ‘end to end’ monetary policy, which for the purposes of this lecture I will split into three phases: Define, Decide, and Deliver.