samchain/econo-pairs-v1 huggingface dataset:
In the past, it has been very difficult for the Federal Reserve to engineer a soft landing for the economy when it had to tighten policy aggressively in order to keep inflation in check. Historically, once the unemployment rate rises above a small threshold of 0.3 to 0.4 percentage points, the next stop has always been a full-blown recession. I very much would want to avoid such an outcome. A long-lived economic expansion is always desirable, but especially so in the aftermath of the financial crisis and Great Recession. The second risk of delaying lift-off and normalizing more slowly is that the low level of the federal funds rate may be distorting financial markets and increasing financial stability risks. I don’t think this has yet occurred to any significant degree, but it is a real risk that we should continue to monitor closely. I see the risks right now of moving too quickly versus moving too slowly as nearly balanced. The weight that one puts on each undoubtedly influences one’s views on when the time will  BIS central bankers’ speeches  5  be right to begin to normalize monetary policy and the appropriate short-term rate trajectory thereafter. Finally, in conclusion, a few words about the importance of financial conditions in thinking about the future path of short-term interest rates. Monetary policy does not work directly on the economy, but instead works through its effect on financial conditions. By financial conditions, I mean all those financial factors that weigh on spending, saving and borrowing decisions.

29.09.2022  Monetary policy in the euro area: where do we stand and where are we going? XXI Congreso de Directivos CEDE, Bilbao Pablo Hernández de Cos Governor  Your Majesty, authorities, ladies and gentlemen, Let me start by thanking the organisers for the opportunity to address you at this XXI CEDE Congress. Today, I will elaborate on how we can bring price stability back to European citizens in the context of current turmoil as it is the responsibility of the ECB’s Governing Council to bring inflation down to 2% in the medium term, the inflation target that operationalises our price stability mandate.1 And we have to do this in none too easy times. After a pandemic that has cost more than a million lives in Europe alone, and with a war of aggression in Ukraine, European households are experiencing a drastic surge in their costs of living. Consumer prices in the euro area rose by 9.1 % in August compared to the previous year, an all-time high for the monetary union. The increase in prices has been especially acute in the energy and food components of the consumption basket. But it has become more general over time, as reflected in an underlying inflation rate of 4.3 % in August, another record high, reflecting to a large extent indirect effects of higher energy and food commodity prices through firms’ production costs.
So, what have we learned about the appropriate level of the cap? It seems likely that having a very elevated aggregate capacity was helpful in controlling market rates initially, perhaps because it showed the FOMC’s commitment to achieving interest rate control, but it’s unclear exactly how much available capacity, or “headroom,” is needed to maintain such control. By way of background, determining the appropriate level of capacity involves striking a balance between the “lenses” I discussed earlier. Imposing a limit on the facility’s capacity reduces the extent to which there can be a disruptive surge of funds into the facility and the extent to which private-sector investors can change their lending patterns by using the facility. Thus, such a limit helps avoid financial instability and unintended effects on the structure of the financial system. However, a limit that is perceived as likely to bind weakens our control of interest rates, because when demand exceeds capacity, the interest rate paid on the ON RRP facility is determined by an auction and is likely to be below the offering rate, thus reducing the efficacy of the facility in supporting the federal funds rate.43 Our recent experience suggests that having reasonably high aggregate capacity can help improve control without necessarily encouraging greater use of the facility. When that capacity is great enough, money market lenders are confident that they will be able to place funds with us at the administered rate, even on financial statement reporting dates.

Recession or instability at home is often quickly exported. Equally important, growth and stability abroad makes all our jobs easier. This means that there are externalities in the work we do, so that more effective fulfillment of our domestic mandates helps to bring us to a better place collectively. Ensuring global growth and stability is and will remain our joint and common endeavor. This is what Terry Checki has worked for over his distinguished career. We have been very fortunate for his service and must carry the mantle forward. 4  BIS central bankers’ speeches
10  Page 11 sur 14   Second, we should follow a clear sequencing regarding the various programmes: (i) the reimbursement of TLTROs comes first, and we should avoid any unintended incentives to delay repayments by banks (ii) at the other end, PEPP should be reinvested until the end of 2024, as stated (iii) this leaves inbetween APP for which the Governing Council has said that reinvestment will continue in full until “well past the date when it started raising the key ECB interest rates”. Here we could start earlier than 2024, maintaining partial reinvestments but at a gradually reduced pace.  Third, the phasing out of the asset portfolio should be orderly, announced cautiously and well in advance. The ‘stock effect’ of asset holdings, which is the key transmission channel, primarily depends upon the expected end-point of the balance sheet normalisation, in terms of both the terminal date and size. Fluctuations in the pace of the run-off during the travel to destination do matter less.  Fourth, as taught by US experience in 2017-2019, the pace of the balance sheet reduction should not be left completely on “automatic pilot”. Starting slowly, assessing markets reaction, and gradually accelerating seems like a sound approach. Some flexibility should be kept, in case of sudden liquidity shocks. Indeed, the ‘flow effect’ may temporarily play a role when market liquidity abruptly dries up. III. A sensitive co-ordination issue This is the way we should run our domestic monetary policy.

That left them exposed to a deterioration in financial conditions, particularly in liquidity, and so to a fall in “market” prices way beyond anything they contemplated, or perhaps still contemplate, for fundamental impairment. This is the mentality of traditional “banking book” risk assessment grafted on to post-Glass Steagall “trading book” valuations and financial accounting. As the regime currently works, mark-to-market is not – or, rather, cannot be – just an accounting convention; it needs to be a culture, or way of life, for those who adopt it. The dynamics of a financial system in which the vast majority employ MTM accounting, irrespective of their declared holding periods, are fundamentally different from one in which just a few “market-makers” do so. Third, therefore, the rules and infrastructure supporting the financial system need to help it withstand stress. Accounting and valuation policies is one such area, now being debated. Another is the trading and clearing platforms themselves. The authorities must do what they can to encourage the industry to focus on whether more wholesale market activity could and should be conducted across central trading and clearing platforms rather than OTC. In the past, intermediaries have tended to be doubtful about this. But it is plausible that the system would have been somewhat more resilient if “vanilla” products had been subjected to the minimum standards, greater pre and post-trade transparency, and centrally set margin requirements that accompany transacting across central infrastructure.
If, even after the mid-term elections tomorrow, the fiscal authorities – Congress and the president – are unable to provide tax, spending and regulatory incentives for job creators to use the cheap and abundant capital the FOMC and other creditors have made available, the economy might once again find itself becalmed. In the speech I gave nearly four years ago to your sponsor, the Manhattan Institute, I specifically said of the then new Congress: “For all the hoopla (surrounding it), it will prove to be nothing more than a case of putting old, rancid wine in new bottles.” 6 Pray this does not happen again. Should the FOMC then try to compensate for fiscal authorities’ inability to act by provisioning still more monetary fuel, it may risk an explosion of speculative excess, or worse: an eventual inflationary conflagration, the debasement of money and the ruination of our economy and lifestyle. Should this prove the outcome, the Fed will be transmogrified from hero to villain. To thicken the plot, as Act V began, Captain Bernanke exited stage right and a new skipper entered stage left. I should say here that I advocated for this particular skipper. Janet Yellen, when she was just another member of the crew as a Fed governor, was pigeonholed as a “dove” (forgive the double-entendre; doves are, ornithologically speaking, part of the pigeon family) but has proven herself in her role at the helm of the FOMC to be neither dove nor hawk.

Distinguished Ladies and Gentlemen, the role of financial services in economic development cannot be over-emphasized. It is generally accepted that financial services play an important role in improving income-generating opportunities and overall living conditions among households. Furthermore, better access to finance not only increases economic growth, but also helps to fight poverty and reduces income inequality between the rich and the poor in society. It is for this reason that the role that financial services play in an economy is sometimes compared to the significant role that blood plays in the human body. It should be stressed that no economy can function efficiently, if at all, without financial products and services. The opening of this branch by NATSAVE is therefore expected to spur economic growth and contribute to the ease of access to financial services which has for long time been a hinderence to economic development in this district. We therefore, expect that the opening of this branch will unlock the vast economic potential of this district. Honourable Ministers, the Bank of Zambia attaches great importance to initiatives that seek to enhance the provision of financial services to the underserved sectors of the economy. To  BIS central bankers’ speeches  1  this effect, the Bank has continued to implement the Financial Sector Development Plan. The Financial Sector Development Plan seeks to address various weaknesses in the Zambian financial system, among them being the low financial intermediation and limited access to finance.
Further, the HKMA discourages the repeated use of the overnight facility by charging repeated borrowers, which is clearly defined, very penal interest rates23. 41. Were the HKMA to suspend the operation of the LAF, interbank interest rates would be even more volatile as banks, in the case of capital outflow, scrambled for liquidity which may not be there. In the end, transactions could not be settled, creating chaos in the interbank market which would in turn damage confidence on the banking system as a whole. This is the reality of modern day finance that we all have to accept and monetary authorities have a responsibility to guard against. (c) The auto-pilot trigger 42. Yet another area of controversy concerns the exchange rate level at which the HKMA passively buys or sells US dollars against the Hong Kong dollar balances in the clearing accounts of the banks in accordance with the discipline of the currency board system, thus triggering the auto-pilot adjustment mechanism. There seems to be three alternatives. First is for the HKMA to do so passively always at the fixed exchange rate of $ to $ This is the most transparent alternative.

This is unfortunate as macroprudential policy is an important policy area and it is vital that a longterm, sustainable structure is created for it, so that macroprudential analysis is not given lower priority when other tasks require resources, and experiences from the crisis are forgotten. The Stability Council has so far played an insignificant role in practice. Sweden deviates from international and European standards Sweden thus deviates – in several respects – from European standards as regards how its macroprudential policy framework is designed. We have also organised the responsibility for macroprudential policy differently to most of the other countries in Europe. In 13 EU Member States, the responsibility has been given to the central bank, a similar number have given it to a separate council and two countries (Sweden and Finland) have given it to the supervisory authority. 18 In addition, it is worth mentioning that the European Central Bank, the ECB, has received a mandate that basically means that it shares the macroprudential policy responsibility with the national macroprudential authorities in those countries that  15  See ESRB (2011). 16  See ESRB (2011). 17  See ESRB (2011). 18  See ESRB (2014). 8  BIS central bankers’ speeches  participate in the Single Supervisory Mechanism. The ECB has the responsibility for a socalled “top-up” of some of the macroprudential policy measures decided at national level – i.e. to tighten the measures further if the bank feels it is necessary.
By early October 2008, it was apparent that a substantial escalation on all three fronts was required to give the financial system what was essentially a time-out in order to halt the selffulfilling prophesy dynamics. It is useful to consider the analogy of the time-outs that parents give to their children when they are misbehaving. While the analogy is not appropriate in terms of the punishment aspect of time-outs for kids, there are a number of similar problems in establishment of a robust time-out strategy. First, how to define the boundaries associated with the time-out. In the case of arresting a run on the financial system, who does and who does not have access to the lender-of-lastresort, guarantees and capital injections? Next, can the parent/government credibly announce and then efficiently operate the time-out? Finally, as all parents are acutely aware, how does one build an appropriate exit strategy from the time-out? In the second week of October there was no room for error on any of these strategic dimensions but instead of one unruly child and a parent playing out an enduring battle, a diverse set of policymakers were confronting a wide range of financial institutions with no experience with time-outs on either side. 7 Further, full participation by systemically important firms was crucial due to the inter-connectedness of the financial system.

I assume, with hope more than knowledge, that this was indeed the extreme of possible financial crisis that could be experienced in a market economy.”  9  8  The Crisis, by Alan Greenspan, March 9, 2010 Draft. BIS Review 81/2010  This motivates a final lesson coming out of this crisis, which is that policy making, whether it is fiscal, monetary, supervisory or other, must always strive to be as forward-looking as possible, and to be robust to the possibility that we will experience situations tomorrow that are unimaginable today. BIS Review 81/2010  9
One factor that indicates growth could continue to be high in these countries is that intra-regional trade has increased in Asia and the continent is therefore less exposed to negative direct and indirect trade effects from countries outside Asia. This is illustrated in Figures 4 and 5, which show how exports from China and India have developed per trading partner. Figure 4 Chinese exports Percentage of total Chinese exports, ASEAN includes India  Source: National Bureau of Statistics of China  2  This applies to the value of exports in nominal terms. 3  The Riksbank’s company interviews, September 2011  BIS central bankers’ speeches  5  Figure 5 Indian exports Percentage of total Indian exports, ASEAN includes China  Source: Ministry of Commerce and Industry, India  As the figures show, an increasing proportion of China’s and India’s exports are going to countries in the rest of Asia and exports to the United States have declined in importance. China and India are thus somewhat less sensitive than previously to weaker demand in the European Union and the United States. However, it is clear that the European Union is still the most important export market for these countries, which means that weak economic development in Europe will have significant consequences for growth prospects in China and India too.

So, even if increased trade with the more rapidly growing markets in the BRIC countries may boost Sweden’s export industry somewhat, we can also expect negative thirdcountry effects from a slowdown in the United States and the euro area. Financial channels However, it is not only through trade that Sweden is affected by weaker economic development abroad. We are also affected through the financial markets. These markets have become increasingly interlinked, which is illustrated not least by the recent turbulence on the stock market. As Figure 6 shows, share prices on the various stock markets are highly correlated. Share prices have fallen on the stock markets of the world recently. However, the fall has been particularly substantial on Stockholmsbörsen, which has fallen by 21 per cent since the turn of the year, while the Dow jones index and S&P 500 index have fallen by 1 and 4 per cent respectively. The Swedish households’ holdings in shares in companies listed on Swedish market places have increased by over 475 per cent since the early 1990s.4 This means that the fall in share prices entails a reduction in wealth, which has a certain restraining effect on Swedish household consumption. This in turn has an impact on growth and employment as household consumption, adjusted for its import content, constitutes around 35 per cent of GDP in Sweden.
It is worth returning to this theory and considering in particular the exceptions. We will consider six such exceptions. The first occurs, as illustrated a few years ago by Paul Samuelson, when emerging economies record an elevated rate of increase in productivity in high value added sectors, forcing advanced economies to re-specialise in low value added production, with a resulting loss in income for the latter. 12 The second exception concerns the adjustment costs which have to be absorbed by advanced economies in order to face the new competition. 13 The faster and more enduring the transition is, the greater are such costs. In particular, if one considers the point from  10  L. Bini Smaghi (2006), "Democratic Representation and Economic Policy Rules in an Ageing Society", Eumoniamaster – Institutional and Political Higher Education, 28 September 2006. 11  A. Orphanides (2003), “The quest for prosperity without inflation”, Journal of Monetary Economics, 50, 3, pp. 633-663. 12  See, for example, P. Samuelson (2004), “Where Ricardo and Mill rebut and confirm arguments of mainstream economists supporting globalization”, Journal of Economic Perspectives, 18, 3, pp. 135-146. 13  See Chapter 5 of the World Economic Outlook of the International Monetary Fund, April 2007. BIS Review 66/2009  5  which emerging economies start, and their size, in terms of population, the adjustment resulting from their current process of growth could take a very long time and could be of considerable magnitude.

The experience of recent years suggests that each of these exceptions to the assumptions on which the theory of international trade is based is plausible. This would perhaps explain why the past decade was characterised, at least until the outbreak of the crisis, by a sustained rate of growth among emerging economies but a decreasing rate for advanced economies. It also explains the increase in income dispersion among the latter. If economic policies ignore such developments and continue to aim for unchanged income and consumption dynamics, they will create internal and external imbalances in the economy which will build up over time. Such imbalances may also exist for a prolonged period of time, owing to the financial system and the ability to issue debt securities in the national currency. But, by definition, what is not sustainable will sooner or later generate instability, with negative repercussions for the whole economy. The way out of this crisis depends on the ability, in advanced economies, to align the expectations and behaviour of agents with the new global context. This does not mean passively accepting the consequences, but avoiding side-stepping them through policies which put off the problem until later, in an attempt to win time. Which means, in other words, shifting the emphasis from macroeconomic to structural policies. These problems will be tackled not just by individual countries but also at the international level.
At the same time, there is also a risk that monetary policy itself can contribute to the build-up of imbalances in the economy, not only by affecting various players through the well-known transmission channels, that is the interest rate channel, the exchange rate channel and the  2  If the repo rate is set 0.25 percentage points lower for four quarters, CPIF inflation in the example would reach 1.9 per cent in the first quarter of 2015 and 2.0 per cent in the second quarter of 2015. This can be compared to the main scenario from July in which CPIF inflation reaches 1.9 per cent in the second quarter of 2015, 1.95 per cent in the third quarter of 2015 and 1.96 per cent in the fourth quarter of 2015, but does not reach 2.0 per cent until 2016. 3  See, for example, Williams (2013). However, the insight that uncertainty about economic relations often justifies a more cautious policy goes back to Brainard (1967). 4  See, for example, Kilian and Manganelli (2003) who analyse the behaviour of central banks on the basis of risk-management principles. BIS central bankers’ speeches  5  credit channel, but also through the risk-taking channel.

This assessment still applies, and it is gratifying that recent events have confirmed an improvement, although forecasts of the future of course remain uncertain. 8  BIS central bankers’ speeches  Figure 6 Positive signs Purchasing Managers’ Index PMI, manufacturing industry, seasonally-adjusted data 70  70  65  65  60  60  55  55  50  50  45  45 Sweden  40  40  USA EMU  35  35  30  30 06  07  08  09  10  11  12  13  Source: Markit Economics  Uncertainty remains However, apart from uncertainty regarding developments in the euro area there are, to paraphrase Donald Rumsfeld, the former Secretary of Defence of the United States, also other “known unknowns” that may affect the short-term prospects. One example of this is if there is a tangible change in market expectations regarding monetary policy in the United States. Ahead of yesterday’s meeting of the US central bank, the Federal Reserve, long-term interest rates had risen in the United States and Europe, partly due to expectations that the Federal Reserve would reduce its asset purchases and partly due to the more positive signals about the performance of the economy. Share prices have risen in parallel with the rise in interest rates. However, a side effect of the better growth prospects and the expectations of a less expansionary monetary policy in the United States has been that several emerging economies have been hit by capital outflows.