samchain/econo-pairs-v1 huggingface dataset:
The November 2021 Treasury Comparison of Independent forecasts, included an average of forecasts produced over the last three months of CPI inflation of 2.8% for 2022Q4 and a range from 1.8% to 5.1%. 3 Among the components of GDP, the most striking downwards revision is to business investment which is forecast to be 18% lower in 2022Q4 then was forecast a year ago. There is various evidence to show business investment is particularly affected by uncertainty. Bank of England  Page 5  In response to significantly higher and more persistent inflation the MPC has increased Bank Rate at every meeting in the intervening twelve months, from 0.1% to 3.0%. The latest forecasts were conditioned on market expectations showing Bank Rate peaking at 5.25%, over 4% higher than the peak expected a year ago. I want to review four of the main sources of uncertainty over the last year and draw out their interactions as well as their implications for the persistence of inflation, since this is the key feature of the MPC’s latest forecasts and the focus of monetary policy. High and volatile energy prices First energy prices. While these had started to rise from late 2020, gas prices in particular started to accelerate more quickly a year ago in the build up to Russia’s invasion of Ukraine. This shock was unexpected, large and passed through quickly to consumer prices.

Notes: Pink diamond represents October 2021 inflation outturn. Energy prices are also the biggest driver of the sharp decline in CPI inflation forecast from the middle of next year, contributing 2.7 percentage points of the forecast fall of 5.7 percentage points in CPI inflation to 5.2% in 2023Q4. Volatility of gas prices has also been a key feature. Greater security of European supply through this winter has helped ease pressures but there remains significant concerns about next winter, and in November the MPC flagged that a persistently higher path for energy prices remains a possible alternative scenario. And given the uncertainties and balance of upside risks, we incorporated an historically large upside skew on our inflation forecast. Sustained labour market tightness Back at the time of the November 2021 MPR, most MPC members were concerned that the end of the furlough scheme could be material for near-term developments in the labour market, as some of the estimated 1 million workers still on furlough when the scheme ended in September 2021 moved into unemployment. The November MPR forecast was for unemployment to rise to 4.5% in 2021Q4. As the economy recovered, employment remained resilient and unemployment fell to 4.1% after the end of the furlough scheme, only slightly higher than its level prior to the pandemic in Q4 2019.
4 As banks usually lend at long maturities while their funding is short term, liquidity risks are a natural part of their operations. In the years prior to the crisis, we could see that many banks, including the Swedish banks, exposed themselves to increasing liquidity risks, partly by increasing their lending and partly by choosing to fund their lending on the markets to a greater extent rather than basing it on their deposits. As market borrowing is often short-term in nature, the banks became very sensitive to disruptions on the financial markets. This became obvious during the crisis. The banks lost confidence in each other and they became extremely cautious about lending money to other banks. Market rates rocketed and a large number of banks experienced an acute liquidity crisis. Several central banks, including the Riksbank, chose to supply liquidity to the interbank markets to ease the stressed situation. It is of course not reasonable that government authorities should have to provide massive loans to ensure that the markets work properly. With hindsight, it is easy to see that the regulations have focused too little on liquidity risks. The procyclical effects of Basel II contributed to the crisis Finally, it has also been noted that the procyclical tendencies in Basel II contributed to the crisis. The explanation for this is the regulatory framework’s strong links to risk.

In normal times, real interest rates – that is, nominal interest rates adjusted for expected inflation – rise and fall to bring desired savings into line with investment and to keep productive resources near full employment. This market dynamic is thwarted in the case of a liquidity trap. That is, when desired savings increase a great deal, nominal interest rates may fall to zero and then can go no lower. Real  BIS central bankers’ speeches  3  interest rates become “trapped” and may not be able to become negative enough to equilibrate savings and investment. That is where we seem to be now – short-term, risk-free nominal interest rates are close to zero and actual real rates are modestly negative, but they are still not low enough to return economic activity to its potential. A liquidity trap presents a clear and present danger of a prolonged period of economic weakness – today that means a risk of repeating the experience of the U.S. in the 1930s or that of Japan over the past 20 years. But we need not resign ourselves to such an outcome. Because of the dire implications of liquidity traps, economists have studied them over the years in rigorous analytical models. Importantly, variants of these models have successfully explained past business cycle developments in the U.S. These studies conclude that economic performance can be vastly improved by employing monetary policies that commit to keeping short-term rates low for a prolonged period.
The budget rules at the national level were too weak to enforce an effective fiscal policy. And the EU rules that are intended to promote sound public finances, the so-called Maastricht criteria, simply did not work. 1 What appeared to be the emergence of an acute crisis at the end of last year has been averted, partly by measures taken by the European Central Bank. This has provided a necessary breathing space, but it has not solved the fundamental, underlying problems. 1  The lack of budget discipline cannot only be blamed on the countries that have now been hit hardest. The relaxation of discipline really began some 10 years ago, when both Germany and France deviated from the Maastricht criteria. Today, 23 of 27 member States fail to meet these criteria. BIS central bankers’ speeches  1  Growth prospects have weakened, partly as a result of the consolidation measures that the crisis has forced governments to take. Unfortunately, there are no good alternatives to such measures. If the countries that have the weakest public finances refrain from implementing them the interest rates on their sovereign debts will rise and there will thus be a risk of the crisis spreading to other countries. We have also seen some signs of credit tightening in parts of the euro area. 2 One of the factors contributing to this may be the European Banking Authority’s recommendation to introduce a capital adequacy requirement of at least 9 per cent for European banks no later than June this year.

Over the past year and a half as a whole, so including that initial drop, headline and core CPI have both risen at an average (annualised) rate of 1½-1¾%, a little weaker than pre-pandemic rates. We know too that quite a bit of the drop in output has been matched, on the supply side, by the significant numbers on the furlough scheme. The CJRS has successfully protected millions of jobs. But, because those on furlough aren’t available for others, it’s had the effect of matching part of the decline in labour demand with a decline in labour supply. During the second quarter of this year it’s likely that an average of over 2½ million people were furloughed – more than 7% of the workforce. Some of those employees were actually working, at least on a part-time basis, and furloughed jobs tend to be less well paid than the average. But, taking account of these things, the scheme was still holding back effective supply in the economy by an estimated 2%-3% in Q2 (Chart 1). 2  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  2  Finally, we also know that the share of the population either in or actively looking for work – the so-called participation rate – has also fallen (the red line in Chart 2 is the year-on-year change). This too will have reduced the supply of labour.
What the ECB can do to help in this area is, first of all, to maintain stable monetary conditions. By creating an environment of price stability, we allow private sector agents to focus their attention on those questions which are of most relevance to their activities and to take advantage of the benefits of this stable environment, such as the possible extension of their planning time horizons. Secondly, we can, to some extent, increase the awareness of the developments in the euro area’s financial structure and banking sector by providing euro area-wide information, and also analyses of these developments. All in all, the introduction of the euro and the single monetary policy has created a fundamentally new environment for banks in the euro area. A new environment that will entail certain risks, but that will also provide many opportunities for growth and enhanced efficiency in the banking industry. I am convinced that the latter will prevail. BIS Review 83/2000  6

We can then use our forecasts and what we believe we know of monetary policy's effects in the short term and in the slightly longer term and then mark out the approximate path. BIS Review 29/2006  5  Connections to the credit expansion and house prices Much of what I have described so far is largely an accepted view of how monetary policy with an inflation target should be conducted, although there may of course be differing opinions as to how the policy should be formulated in more detail. I intend to conclude by touching on a slightly more controversial subject; namely the interaction between asset prices and a stable real economy with low inflation. Credit volumes and asset prices are studied in the regular monetary policy analysis, as they affect, and are affected by, fluctuations in inflation and economic activity. Higher asset prices lead, for instance, to positive wealth effects, which in turn affect households’ choice between consumption and saving, and thereby total demand in the economy and inflation. On top of this, it is complicated to capture the risks in the usual forecast work as a result of large fluctuations in asset prices. For instance, it is difficult to quantify the risks linked to an unusually rapid increase in house prices and indebtedness over a long period of time. These risks may actually be beyond the normal forecast horizon, but nevertheless be so serious, if they were realised, that there is justification for taking them into account in some way.
But a fund selling material amounts of less liquid assets in one day to meet redemption pressures could find itself receiving less than these quoted prices.19  18  In the US, structural reforms in 2014 preserved ‘constant NAV’ status for institutional funds only where they invest in government bonds. Any fund offering constant NAV much have the ability to implement a redemption liquidity fee and gates during times of stress. In Europe, reforms of 2017 preserved constant NAV for funds invested in sovereign securities. 19 As part of its Financial Sector Assessment Programme for Ireland, the IMF estimated that it could take a high-yield credit fund up to three days to meet redemptions worth 10% of its assets. To ensure redeeming investors would not benefit at the expense of remaining investors, the fund manager would need to know exactly how much selling three days’ worth of assets in one day would move the price and adjust its quoted NAV accordingly, which is highly uncertain. 11  All speeches are available online at www.bankofengland.co.uk/speeches  11  Without other measures, redemptions from funds invested in less liquid assets can transfer economic value from remaining to redeeming investors. That could create an incentive to be on the side of the redeemers. It could create a first redeemer advantage. This isn’t much of an issue for funds invested in liquid equity markets, where large amounts can be sold at quoted prices at short notice.

If one also takes into account the depreciation of the domestic currency against $ as at end-November, the stock market of Thailand has fallen by 71% from its peak this year, Malaysia by 69.7%, Indonesia by 64%, Korea by 61% and BIS Review 116/1997  -2-  the Philippines by 61%. Even Singapore’s stock market suffered a 35.7% drop in $ terms, which is comparable to the 37.7% fall in the Hang Seng Index. Only Taiwan recorded a lower fall of 31%, whereas the Nikkei also lost 28%. I quoted these figures in order to illustrate the magnitude of the turmoil and its contagion effects on the asset markets in the region. Singapore, which is a strong economy and given a triple-A rating by the international rating agencies, adopts a managed floating rate regime, but such regime has not insulated its asset markets from the regional turmoil. In terms of interest rates, Singapore’s one month interbank rate rose by almost 5 times to 16% on 27 October from around 3.6% on 2 July. Singapore’s one month rate is now 6.25%, which is still significantly higher than the level in early July. In the case of Hong Kong, the one month rate rose also by around 5 times from 6% in early July to a high of 30% on 23 October. At present the one month rate in Hong Kong is around 7.5%.
As regards the transfer mechanism, we have decided to prioritise a digital euro solution in which transactions are transmitted online and validated by a third party, since this model covers the broadest set of use cases and supports the Eurosystem's policy objectives. Peer-to-peer validated offline payments are also going to be further explored, but this option presents a number of technical and regulatory challenges that make its time to market more uncertain. Privacy is a design consideration that was rated high in importance by respondents to the public consultation we carried out at the end of 2020.1 In principle, a digital euro should provide the same level of privacy as current digital payment solutions in order to comply with the regulatory framework. However, we are also exploring, together with the co-legislators, the possibility of attaining a higher degree of privacy in situations considered of low risk, such as online transactions for amounts below a certain threshold or offline payments, since they need to be carried out in close proximity. Full anonymity, however, is not considered a viable option from a public policy perspective. Complete visibility by the Eurosystem is not deemed desirable either, so it would be limited to what is strictly necessary to perform its tasks or is required by regulation. Last, but not least, we have assessed different ways to ensure a digital euro is used as a means of payment rather than as a store of value.

It also enables the regulator to focus supervisory attention on the areas and institutions that pose the greatest risk to financial system stability. BIS Review 159/2008  1  Thus, the supervisory authorities are in a position to identify systemic risk factors and devise intervention measures aimed at forestalling systemic failures. The added advantage of this approach is that it brings about optimal utilisation of supervisory resources. Ladies and Gentlemen, I am happy to inform you that following our initial efforts dating back to 1999 to introduce risk based supervision, the Bank of Zambia has this year fully adopted RBS. As a result it is expected that there will be enhanced supervision of banks and other financial institutions. Let me also state that the BoZ is committed to implementing the Basel II Capital Accord but stands ready to review this stance in the face of the ongoing global financial crisis. As you know Basel II is intended to make banks operate at capital levels which are commensurate with their risk profiles. To this end, the BoZ just issued risk management guidelines. Distinguished Workshop Participants As I conclude, I wish to urge the workshop participants to participate actively in the deliberations and use this opportunity to tap knowledge and skills from the vast experience of the resource persons. This workshop provides us with a unique opportunity to share our respective country experiences and challenges.
Moreover, whether a country intends to implement the New Accord by the end of 2006 or perhaps later, the Basel Committee recommends that supervisors everywhere encourage their banks to strengthen their abilities to identify, measure, and manage the full range of risks they face through internal processes. At the same time, I am very encouraged to hear that banks and supervisors share the notion that none of our countries, regardless of our stage of development, can foster our own economic growth unless our banks are adequately capitalised and well managed, our financial systems stable, and our markets transparent and open. I believe that the New Basel Accord goes a long way toward achieving and strengthening those three objectives. Certainly we hope that, over time, more banks and more banking systems will adopt the more advanced approaches to risk measurement and management laid out in the New Accord. When banks are adequately capitalised and well-managed, they are better able to promote growth by providing credit to consumers and businesses alike. But more broadly, when banking systems worldwide are  BIS Review 52/2003  5  adequately capitalised and well-managed, the international financial system becomes more stable, better able to promote sustainable growth, and more resilient during periods of distress. Thank you for your attention. 6  BIS Review 52/2003

It is a natural consequence of the Riksbank being in earnest about its task of ensuring a rate of price and wage increases that is in line with the inflation target in a situation where economic activity in Sweden is become gradually stronger. Here I am prompted to refer to what Knut Wicksell, the well-known political economist, pointed out in his day; it is a matter of looking for the “natural” rate of interest at which the economy can expand without prices and wages rising too quickly. 4  BIS Review 19/2002
There is one other arena where clearer rules of the game would be of great value - the Commercial Court. After 13 years, we have at last drawn a line under the BCCI case, the most expensive fishing expedition in history. It ended as a comprehensive victory for the Bank, both on the substance of the case and on costs. The trial set new records - the longest opening speech in English legal history, an even longer reply, and almost certainly the most expensive commercial litigation ever. It is for others to comment on the behaviour of those who brought a case that even they described as a blood sport. I can presume only that they were allowed to play within the rules of the game. In which case, it is the rules of the game that should be questioned. A legal framework for enforcing contracts and resolving disputes is not just an arcane process which allows professionals to earn vast fees, but an integral part of the infrastructure of a successful market  2  BIS Review 61/2006  economy. It matters that there are simple, clear and timely ways of resolving disputes. What the BCCI case revealed was a legal system incapable of guaranteeing that. How can a case described by the trial judge himself as built “not even on sand but on air” take thirteen years and over £ million in costs to come to a conclusion?

One of the products of the Initiative is a “Statement by Financial Institutions on the Environment and Sustainable Development” (which is appended to this speech). The Statement includes a commitment by financial institutions to contribute towards sustainable development, to adopt a precautionary approach to environmental management and to foster public awareness and communication of their environmental policies. Over 160 institutions have signed up to the statement, but none I regret from Hong Kong, except those which have done so by virtue of being part of international banking groups. I would therefore urge banks in Hong Kong to consider becoming signatories to the Statement, and to BIS Review 108/2000  2  familiarise themselves with the work of the Initiative more generally. You will find that the various components of the work of the Initiative, including annual roundtable meetings, provide much useful practical guidance to financial institutions on how to tackle environmental issues. Secondly, in line with the UNEP Statement referred to above, banks should consider producing a formal environmental policy statement and making this publicly available. Such a statement should represent an acknowledgement by the bank that it must take environmental implications into account in its business operations, decisions and processes. This should include its own use of energy and resources and how it interacts with customers. However, on its own, a policy runs the risk of becoming a “motherhood” statement. Policies should therefore be backed up by management structures and systems, specific objectives, action plans and monitoring procedures to ensure that concrete results are achieved.