samchain/econo-pairs-v1 huggingface dataset:
In many countries, the key to this success has been inflation targeting. Although the main reason for introducing inflation targeting in many cases - not least Sweden’s - has been frustration over the previous regime and economic performance, it has subsequently proved to work so well that it now stands out as an interesting option also for already well-functioning economies. This is demonstrated in particular by the current debate regarding a possible introduction of inflation targeting in the United States, where the economic performance in recent decades has been remarkably good and monetary policy successful. But first, before I go into a problem that currently feels significant for us at the Riksbank and that I also think is central to the discussion in the United States and elsewhere - the balance between concerns for output stability and inflation stability - allow me to say a few words about my fundamental views regarding inflation targeting policies. Unsurprisingly, I see considerable advantages of having an explicit, symmetric inflation target. It is also my impression that this view enjoys considerable support in the academic literature, an assertion, however, that no assembly is better placed to question than this one. The clear framework encompassing an inflation target, published forecasts and a specified target horizon has generally worked well as a guide for policy. There have been communication problems here and there, but it is not obvious that the situation would have been much better under a different regime.

It does however claim that there is a discrepancy between word and deed that raises questions regarding what status the stabilisation of the real economy really has in relation to stabilising inflation. I should perhaps underline here that this criticism, as I understand it, does not say that there has been greater clarity in countries that do not have specific targets for inflation. In my opinion, the assertion that the communication of inflation-targeting central banks generally tends to focus a lot more on the stabilisation of inflation than of the real economy is essentially correct. Inflation forecasts undeniably have the leading role in the reports published by these central banks, and it is usually on the basis of these forecasts that the banks explain their policy decisions. So why have central banks that pursue a flexible inflation targeting policy chosen to concentrate on inflation in their communication and often been rather vague as regards how they look upon the trade-off between stabilising inflation and stabilising the real economy? One important explanation, which I already have touched upon, is probably that many of the economies that have adopted inflation targeting policies were previously beset with high, sharply fluctuating inflation. The task, accordingly, was to create broad understanding and credibility for a new policy focused on price stability.
Our answers have been clear. First of all, we appreciate the discussion aimed at perfecting areas that may help to improve our fellow Chileans’ standards of living and further develop our economy. However, the Central Bank will not take part in the particulars of each of the reforms, because they lie beyond its scope of action. Secondly, we value the fact that if some reforms entail permanent increases in public spending, their funding comes from increased permanent income, so as to preserve the fiscal soundness our economy has displayed for decades. Third, it is logical – and recognized as such across the board – that reforms of this magnitude generate some uncertainties and worries, pushing back investment projects and affecting economic activity. But this effect is difficult to quantify. Lastly, in our pursuit of institutional stability, we think it is positive that the deepest agreements possible be reached around the major reforms being now debated in the country. From this perspective we appreciate the spirit of the agreement led by the Finance Minister and this Parliament for the approval of the tax reform. Also, I would like to explain the role played by the Central Bank in the context of the economic slowdown we are experiencing. The function of monetary policy is not to prevent the economy from adjusting, but rather to help the adjustment to be smooth and not jeopardize the convergence of inflation.

Chart 14. Revisions to Oil and Import Price Assumptions Oil Prices (USD/bbl)  Import Prices (2003=100)  Source: Bloomberg, CBRT. Source: TurkStat, CBRT. Particularly due to supply-side developments, oil and other commodity prices remained considerably above our assumptions presented in the January Inflation Report (Chart 14). Hence, we revised our assumptions for oil and other commodity prices upwards (Table 2). As illustrated on the slide, these changes in assumptions led to an upward revision of about 50 basis points for the end-2011 inflation forecast and a slightly upward revision for the 2012 inflation forecast. BIS central bankers’ speeches  7  Table 2. Revisions to 2011 Assumptions  Oil (Annual Average, USD)  Prices  Import (Annual Percent Change)  Prices  Food Price (Year-end Percent Change)  Inflation  January 2011  April 2011  95  115  10.9  16.2  7.5  7.5  Another factor affecting 2011 inflation forecasts has been the tariff hike on fabrics and apparels. Although major uncertainties exist about how this development will be reflected on prices, we assumed that this would add to year-end inflation by about 50 basis points while revising our forecasts. Despite the recent benign course of food prices, we preserved our assumption regarding food inflation for end-2011 at 7.5 percent in view of the extreme volatility in unprocessed food prices and rapid increases in agricultural commodity prices (Table 2).
Policy  The FPC introduced its housing measures in 2014 following the evidence from the post-financial crisis recession that aggregate household indebtedness and the prevalence of highly indebted cohorts had amplified the recession and its impact on the financial system. The tools therefore aim to enhance the resilience of the financial system. The measures aim to act as general structural ‘guardrails’ rather than as a countercyclical tool, though the FPC reviews their calibration periodically. Such a review is in train and be completed by the end of this year. As I have set out, since the introduction of the tools the housing market, outside London, has been relatively quiet by UK standards. But, as I have also explained, there are likely to be many factors behind this in addition to the FPC’s housing measures. The Bank has published extensive analysis on the impact of the tools and a forthcoming “Bank Overground” post will examine the extent to which the measures have acted as a constraint on renters entering the housing market. This analysis finds that minimum affordability requirements and lenders’ internal limits on loan-to-values are likely to have been the dominant constraint for most renters. It estimates that only 2% of renters would have 15  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  15  been able to afford the median-priced first-time home in their region had they not been constrained by the affordability test.

These simplifying assumptions mean that the analysis and resulting figures should be taken in context. 9  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  9  Chart 6: Mortgage debt: income  Chart 7: Price and non-price credit conditions 8 Percentage  140 Counterfactual  Actual  pp spread to OIS  Cumulated net percentage balances  -600  6  -400  4  -200  2  0  120 100 80 60 40  0 2007  20 0 70  75  80  85  90  95  00  05  10  15  200 2010 2013 2016 2019 2y75% mortgage spread (lhs) 2y90% mortgage spread (lhs) Availability of secured credit (CCS, rhs) Credit scoring criteria Maximum LTV  20  The blue line represents estimated demand for mortgages and the resulting impact on aggregate mortgage debt, under the assumption that there is no shortage of mortgages. Demand for mortgages is estimated based on factors including household wealth and incomes, the housing stock and the elements that contribute to the user cost of housing (including interest rates, maintenance and depreciation costs, property taxes, and expected capital gains). It is estimated for the period 1984-2007 when most borrowers were not credit-constrained. This forward demand equation is then projected forward based on realised values for incomes, house prices and the stock, assuming there are no constraints on credit availability or access to mortgages.
Sound and safe cross-border consolidations would make banks better able to diversify their risks across the euro area, and channel savings more effectively towards investments across borders; this would foster the Financing Union I talked about. From a supervisory point of view, it involves supporting an approach on a consolidated basis by granting more waivers on liquidity and capital so as to allow more flexible capital allocation and limit ring-fencing. Swift execution of cross-border transactions is also essential: the implementation of a fast-track process by the SSM would address this issue. From a resolution point of view, internal MREL requirements could be a tool to facilitate the resolution of institutions, but they would become meaningless if calculated on a national basis. Indeed, having internal MREL in all countries could be an obstacle to the single market and European banking crossborder mergers. Finally, we should address business and legal impediments to cross-border mergers: information asymmetry, non-performing loans (NPL) or anti-takeover legal structures in different countries. As a first concrete step, I suggest that the EBA publish a comprehensive stock-taking of all the regulatory and supervisory obstacles to cross-border activities and mergers. The aim is crystal clear: within a Monetary and Banking Union, a cross-border merger must not be more difficult and cumbersome than a “domestic” merger. The logic of the banking union is that it should be considered for banking purposes as a unique jurisdiction. I would like to conclude by quoting one of the founding fathers of Europe.

All this, combined with pillar II capital requirements, could lead to over-calibration: each individual decision may be warranted; but 3/4  BIS central bankers' speeches  their somewhat disorderly accumulation is not. And obviously, we must not jeopardise the level playing field between euro area banks and their international competitors. Third, in the interaction between authorities, which should be improved: the case of Banco Popular, although it was a success, has also demonstrated the importance of swift and close cooperation between supervisory and resolution authorities, both at European and national levels. In this respect, there is still a need to better coordinate the roles of the different European authorities – SSM and ECB, SRM, Commission, and EBA – in order to have a clearer “pilot in the plane” in crisis management. At a later stage, we could even consider establishing a single banking authority for our single Banking Union, acting to bolster the robustness of the European banking sector. The second challenge is to support cross-border bank consolidations in the euro area. The head of the SSM too, Danièle Nouy, insisted on this point a couple of days ago. We still lag far behind the American market in this respect: the market share in the United States of the top five banks is more than 40% whereas the market share in the euro area of the top five banks is less than 20%.
The relevant legislation contains a number of mechanisms designed to ensure the SNB’s independence. One of these is our distribution practice, which has been developed on the basis of the provisions of the National Bank Act (NBA). We are happy to make distributions to the Confederation and the cantons; we can only do so, however, where the balance sheet and annual results allow for this. As we announced some days ago, this will unfortunately not be the case for the 2013 business year – the first time since we began our profit distributions in the current form, over 20 years ago. Thus the provisions regarding profit distribution clearly set out in the NBA have come into effect. This ruling takes automatic account of the fact that the risks in our balance sheet have increased as a result of combating the crisis. According to the legislative authority, a strong SNB balance sheet is more important than distributions to shareholders or to the Confederation and the cantons. It therefore supports the SNB in its conduct of an independent monetary policy, something which is particularly valuable in difficult times. Nevertheless, I am conscious that the lack of a distribution can be very distressing for the Confederation and the cantons, in particular, and will be a challenge. However, distributions will not be assured in the future either, since our results will continue to be subject to considerable fluctuations.

To put it somewhat bluntly, this fallacy can be described as follows: Now that the central banks have done so much to save the economy and the financial system from collapsing, they should be permanently in charge of ensuring sound economic growth, high employment, low interest rates and a healthy real estate market. Such extremely high expectations are exceedingly dangerous. Central banks would be forced into a role in which they had to fulfil tasks for which they neither have the requisite responsibilities nor the appropriate instruments. As a result, other agents could be induced to neglect their responsibilities. While the crisis might be delayed, it most certainly would not be overcome. It may appear politically opportune to put problems on the back burner, rather than working out solutions. In the long term, however, the cost to the economy and to society would be horrendous. What can central banks do to counter such unrealistic expectations? They can, for instance, communicate clearly and emphatically what their role is and where their limits are. With this in mind, I invite you to join me on a brief tour d’horizon. I would like to start by examining a few selected aspects of monetary policy, focusing on long-term effects. I will then look at the area of financial stability. Finally, I would like to use the insights gained in this brief overview to answer the question posed in the title of this presentation about the role of central banks.
During 1997-1998, we underwent a severe economic contraction, thousands of companies went bust, hundred thousands of people became unemployed, and the amount of nonperforming loans in the financial system skyrocketed. The economy staged a rebound in 1999 and 2000. But the recovery was cut short by the global economic downturn in 2001, when growth that year registered merely 2.2%. Things then started to turn in 2002. Despite the continued global slump, the Thai economy expanded 5.3% that year and has since been on a firm growth path. The resiliency of the economy is evidenced by the fact that during the past two years Thailand has weathered several economic storms – the Tsunami, avian flu, political uncertainty, and the recent oil shock – with only a moderate slowdown in GDP growth. BIS Review 46/2007  1  The key driver behind the current economic expansion has been a combination of domestic demand and exports. The latter, in particular, has always been our main engine of growth. One reason for this is that our export structure has become more diversified, both in terms of product and destination. For example, over the past twelve years, Thailand’s exports to ASEAN + China as percent of total exports has increased from 25 to 30% whereas those to G3 have declined from 51 to 42%. This allows us to reap benefit from the growing intra-regional trade, particularly China-related.

The Financial Sector Master Plan (FSMP) will move onto its second phase, with the review of the plan and emphasis on increased competition and consideration on potential entry of new players to further enhance efficiency and resiliency. As a tool, the macro-prudential and risk assessment framework which includes development of an early warning system model to bolster our financial stability analysis in order to make pre-emptive policy responses when appropriate has also been put in place. With regards to real sector reform, significant attempts have been made to raise real sector productivity, promote transparency, and strengthen governance. Nevertheless, there remains more to be done on this front. The most important issue here is to keep pressing on with the reform effort and not to let reform fatigue get into our way. The adoption of a full-fledged inflation targeting regime in 2000 eliminated the inconsistencies among monetary policy, exchange rate policies, and capital flow policies that had contributed to the 1997 currency crisis. This framework has served us well, with enough flexibility to accommodate other important policy objectives such as output stabilization, provided that inflation remains in check. In fact, the consistent improvement in our monetary policy mechanism and thus its efficacy have given me reasons to be optimistic about the prospect of our present regime. Seeing less inflationary  6  BIS Review 46/2007  pressure, the Monetary Policy Committee this month turned to an accommodative stance to ensure that the economy continues on a satisfactory course.
What will be traded in an EMU environment? How much will be traded? And where will the new instruments be traded? Let me take these points in turn. What will be traded when the euro makes its debut? BIS Review 67/1997  -4-  Looking first at on-exchange markets, it seems likely that, in EMU, there will be room for only one three-month euro short-term interest rate futures contract, although the greater depth of the new euro market may allow other products at the short end of the yield curve, such as a one-month euro contract, to co-exist with the three-month benchmark product. In the bond markets, one - and perhaps the most likely outcome - is that a particular government’s bonds will become the benchmark for the new euro bond market. We may all speculate idly on which that country might be. These issues would then anchor the euro yield curve and futures contracts would follow naturally. The greater depth of the new euro bond market may well mean that it can support a greater range of futures contracts further along its yield curve, as is the case now in the US. Five and two-year contracts, which do already exist in the Bund market, may develop further. The exchanges themselves recognise this point and are seeking to fill in the yield curve in their various markets before the start of EMU. Other national bond markets will be keen to run alongside the main market and futures contracts on those markets may also exist.

Warning notes have been sounded, of course, about the need to avoid a lumbering, slow-moving bureaucracy, and the need to ensure that regulation is appropriate for the type of market. I understand those points and, particularly as far as you are concerned, the need to distinguish between professional wholesale markets and the retail sector. There are some interesting developments in that direction in the US at present, which we shall certainly look carefully at as we decide our own new structures. But, overall, I sense that we begin the task with some goodwill in the marketplace. I was particularly interested to see the summary of the views of members of your Association on regulation in the Price Waterhouse report published late last year. That is a helpful document which we will take into account. I was struck by the importance you attached to a clear but flexible regulatory environment, which scored highly as a success factor as far as the London market was concerned. And I took the strong point made about the need for cost control, on the one hand, and to provide a framework which facilitates innovation. When it came to structure, your views were divided. But I was encouraged that the option of an enlarged SIB incorporating the SROs was the one which received the strongest favourable response. There was also quite a bit of support for taking banking supervision out of the Bank of England.
Uncertainty and risk remains high, and I believe there are four key risk factors we need to focus on. First, sustainability of nascent “green shoot” global recovery remains a subject of financial market speculation, and will continue to drive trading position and volatility. The sign of recovery in global economy appears to be revealed as “green shoots” after a deep recession. This recovery is credited to a wide range of public intervention in major economies, which has boosted the subdued private demand as well as reduced uncertainty especially in the financial markets. However, the sustainability of the nascent recovery is yet to be confirmed, as the financial systems in major economies have not been fully repaired. Secondly, the timing and speed of the unwinding process of public stimulus packages have yet to be settled, the so-called “exit policy.” Thirdly, the difference in speed of recovery between major economies and emerging economies may also have important implications for cross-border capital flows, and financial market volatility, particularly exchange rate. The unstable differentials caused by rocky recovery paces, can give rise to large and volatile capital flows, which may have a tendency to be short-term and foot-loose. And fourth, uncertainty regarding global regulatory reform. In the immediate aftermath of the crisis, it is natural to observe the growing sentiment towards re-regulation, coupled with nationalisation of problem banks, the trend towards re-regulation has picked up momentum. Therefore, it is important to ensure that we do not swing from unquestioned faith in the market to unquestioned faith in the regulation.

And that is part of what is occurring today, with Japan, Germany and China running excess surpluses relative to fundamentals; and the US and the UK running excess deficits (Chart 2). And although the euroarea excess surplus is relatively modest relative to its GDP, in absolute terms it is at least as important as 6  those of Japan or China (Chart 3). So while the distortions are few in number, those that exist are large in scale and systemic in importance. 4  Canadian deficits averaged 8% of GDP in the thirty years before World War I. ‘Canada in a multi-polar world’, speech by Mark Carney, 16 May 2011, available at http://www.bankofcanada.ca/2011/05/canada-in-a-multi-polar-world. 5 See Lisack, N., Sajedi, R. and Thwaites, G. ‘Demographic trends and the real interest rate’, Bank of England Staff Working Paper forthcoming. 6 Small economies hosting large financial centres like Singapore and Switzerland are special cases for which it is difficult to estimate ‘norms’. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Chart 2: Actual current account balances and IMF estimates of fundamental balances  Sources: IMF July 2016 External Sector Report, WEO April 2017 and Bank calculations. Notes: The data point for the 2016 current account for the UK has been adjusted; see notes to Chart 1 for more details. Chart 3: Excess current account balances  Sources: IMF July 2016 External Sector Report and WEO April 2017.