samchain/econo-pairs-v1 huggingface dataset:
But the editor cut it, leaving it "for future research." What's Past is Prologue Fast forward a decade, and an entirely new question about r-star arose: Why had estimates of r-star fallen so low? It's a topic Thomas and I explored in our "Redux" paper.8 And in 2017, Kathryn, Thomas, and I expanded the set of economies for which we estimated r-star.9 Indeed, before the pandemic, historically low estimates of r-star characterized advanced economies across the globe. This is illustrated by the Holston-Laubach-Williams (HLW) estimates of r-star for the United States and the Euro Area using data through 2019, shown in Figure 1. Both were around ½ percent before the onset of the pandemic, far lower than estimates from preceding decades. Back to the Future One of the features of the LW and HLW models is that both are designed to be flexible and to "let the data speak" in measuring changes in the natural rate of interest. Even this flexibility, however, has its limits. And the economic turmoil brought on by the COVID-19 pandemic went far beyond what the models were originally designed for. In particular, the pandemic violated two key assumptions about the nature of macroeconomic disturbances underlying the models.10 First, the Kalman filter statistical method that serves as the models' workhorse assumes random disturbances to the economy follow a normal, or bell-shaped, distribution. Relative to historical experience, COVID-19 represented an extremely rare tail event in terms of its effect on the economy.

In the current environment, the pressure is for greater market orientation and liberalisation on the premise that competition would lead to pricing that would facilitate a more efficient allocation of resources. This, however, is not the only objective that is to be achieved. Consideration needs to be given to the objective of promoting growth, financial stability and social stability. Some of these objectives are conflicting and need to be carefully balanced, taking into account the trade offs. Increasing the tolerance level amidst a volatile environment The pursuit of efficiency and competition has to be balanced with the objective of attaining soundness and preserving stability. Given the unique characteristics and peculiarities of emerging economies, the transition to a more liberalised environment would demand appropriate sequencing of measures to be taken. Factors commonly ascribed as key in achieving and safeguarding financial stability include sound macro-economic management, effective regulatory and supervisory framework, greater transparency and disclosure of information, increased market discipline, dynamic accounting and auditing standards as well as the existence of strong corporate governance. For emerging economies, the requirements extend beyond these factors to include other areas, namely the development of the necessary financial infrastructure that supports a strong foundation that is able to provide depth and breadth to the financial system and economy as a whole.
Rising house prices lead to wealth effects that influence decisions regarding consumption and saving. Developments in debt affect the impact of interest rate changes on consumption. This does not necessarily entail any dramatic consequences. However, when the rates of increase remain at a high level for a long period of time, there is an increased risk of imbalances in the build up of debt and in house prices. This could in a worst case scenario lead to large fluctuations in both inflation and the real economy further ahead. The question is how to manage the risk of this type of imbalance occurring. One way of managing this and similar risks is to make a change in the repo rate sooner or later than would otherwise be assessed as the most appropriate timing, given the forecasts for inflation and the real economy. Let me illustrate this with a brief summary of our reasoning in connection with the monetary policy decision made in February this year. We then raised the repo rate, despite the fact that the inflation forecast in itself could have warranted waiting some time before implementing an increase. Our assessment was that there were other circumstances that indicated the repo rate should be increased in February, but that it could thereafter be raised at a slightly slower rate. The very expansionary monetary policy conducted in recent years, together with the weaker krona, has stimulated the economy considerably.

I would also like to emphasise that our management of the risk of an adverse development in house prices and household indebtedness does not in any way mean that we consider that these aspects  3  See also Tucker, P., (2006), "Reflections on operating inflation targeting”, Bank of England Quarterly Bulletin: Summer 2006. 4  BIS Review 84/2006  have greater relevance for what is regarded as desirable monetary policy than, for instance, the situation in the labour market. From time to time situations will arise where we will need to take into account, in a different way than the usual, the risks of adverse economic developments that are difficult to quantify. Recently this has been house prices and household indebtedness, but in the future it could be other variables. This is an important dimension of the flexibility in our inflation-targeting policy. The current situation Let me conclude with a few comments on our most recent monetary policy decision. A more detailed account is provided in the separate minutes of the monetary policy meeting, which were published the day before yesterday. We chose at our monetary policy meeting on 29 August to raise the repo rate by 0.25 percentage points. Now that we have chosen to conduct less expansionary monetary policy, this is because we have made the assessment that it is necessary to avoid inflation being above target a couple of years ahead, while at the same time it contributes to a balanced development in the real economy.
This deprived the inexperienced investors of the necessary help and support. A look at, for example, the advice that was provided before stock markets began to fall tells the same tale: recommendations to sell made up less than one per cent of all advice. The media latched onto the stock market boom with reports of rapidly rising share prices. Instead of taking a critical look at what was happening, the notion that the new economy offered chances of earning a quick profit became the conventional wisdom. The part played by human psychology for herd behaviour in financial markets has in fact given rise to a new school of financial knowledge, known as Behavioural Finance. Two key concepts in this analysis are just conventional wisdom and wishful thinking. There’s nothing odd about that. When people make investment decisions they function in much as the way as in other contexts. A familiar example is our reluctance to enter a restaurant that is empty - we generally prefer one that already has many guests, particularly if there is a long queue outside. We simply rely on the good judgement of others and assume that all those inside have made the right choice. By arriving at a better understanding of how people behave, we can certainly do a good deal to prevent unduly large mistakes in market pricing and perhaps ultimately reduce the occurrence of financial bubbles.

But one of them pays interest of 5% a year, the other one only 2%. [9] Let’s  Page 7  also imagine that you can put funds somewhere without any risk and earn interest of 1%, and that the Solvency II rules say that for assets with the credit rating of these bonds we have to allow 0.5% per year to cover the risk of things going wrong. Now under the existing rules, for the bond paying 2% the insurer treats 0.5% as the MA – this is the 2% interest on the bond, less the 1% risk-free rate and the 0.5% allowance for things going wrong. The insurer will bring all of that interest due in the future, so 0.5% for each year, forward to today and count it as shareholders’ capital. For the 5% bond, the insurer does exactly the same: although the bond pays so much more interest than the 2% bond, the insurer uses the same riskfree rate (1%) and allowance for things going wrong (0.5%). As a result the insurer books as capital up-front the entirety of the 3.5% (5% less 1.5%), so a much bigger amount than for the 2% bond. Some stakeholders think we shouldn’t allow this at all, even for the 2% bond. We don’t agree with that position, but we do think we need to ask: are we entirely confident that all of that extra return on the 5% bond can safely be considered risk-free and banked as capital up-front?
It is to encourage banks to lend to corporations, SMEs and households alike; similarly, extending the asset purchase programme to corporate bonds will be of particular benefit to large French corporations. In other words, we are securing the provision of credit to businesses and households, and protecting it from tensions linked to market volatility. c) Now, what about the risks? I talked earlier about the risks of doing nothing: we need to take action in order to bring inflation back up towards 2%. That said, we also need to keep a close eye out for any possible negative side-effects of our monetary policy, notably for financial stability. We are actively monitoring the financial cycle, including in France where the task falls to the High Council for Financial Stability set up in 2013. I took part in its 8th meeting at the Finance Ministry last week. For the time being, there are no signs of bubbles forming in our main financing markets: on the whole, developments in the equity markets appear in line with corporate profit forecasts, while evolutions in bond yields also seem consistent with the outlook for inflation and growth. Nor are there any signs of excessive credit growth in the financial system. Nevertheless, we remain vigilant over all aspects of the current macroeconomic and financial environment.

Well, you all well know that Milton Friedman was rather sceptical about our ability to avoid serious mistakes in this very area and that led him towards the formulation of a “simple rule” of constant growth of the money stock. In this framework no forecasting was required. Of course, he faced evidence of the failure of the large-scale econometric models that had been used in the 1950s to 1970s and that were later subject to strong criticism. The models were hit by a series of structural breaks, which made the previously observed relationships unreliable. Consequently, it was argued that these breaks were not a result of bad luck only, but also reflected a lack of microeconomic foundations in the models, neglect of forward-looking expectations and ad hoc econometric restrictions. The terms “Lucas critique” and “Goodhart law” have become standard warning signs for all macroeconomic modellers. The actual way in which forecasts are produced and used at central banks has, however, changed substantially over the past two decades. The changes have reflected developments both in the economic (and econometric) theory and in monetary policy regimes. Bearing in mind the failure of large-scale models, the profession has started to prefer smaller-scale models with a sounder microeconomic background, built in recent decades usually along the lines of New Keynesian Economics. As the first generation of these new models matured, though, the second generation started to become more detailed again.
This is a line of ongoing research that allows us to better understand the evolution of the labor market and its implications for medium-term inflationary pressures. Domestic financial conditions, meanwhile, are still good in terms of interest rates. However, lending volumes have slowed compared to previous years, which the respondents to the Bank’s Business Perceptions Report and Bank Credit Survey interpret as the consequence of weak demand (figure 7). In our baseline scenario, we estimate that this year the economy will grow between 1% and 2%, down from the range we projected in December, 1.5% to 2.5%. Around 0.2 percentage points of this correction originate in the effects of the Escondida mine downtime. Because of the importance of this mine in the country’s copper production— 15% to 20% in 2016—, this downtime will have a substantial impact on first-quarter GDP, around 1 percentage point of reduced growth, taking the figure to near zero. Despite its economic impact, the Escondida deadlock, plus the effects of massive forest fires in January and February, are all one-time events that not only do not affect the long3  term trajectory, but neither do they influence the dynamic of the business cycle. Thus, we do not expect these events to have any material repercussion on the performance of other economic sectors or on inflation.

It has made it clear that it sees no constitutional bar to British membership. There are advantages. For example, the introduction of the single European currency will help to complete the Single European Market. And the uncertainty associated with investment decisions within the euro area will be reduced. Europe will continue its consolidation as a major trading bloc. And financial benefits should flow from the introduction of the euro as a major currency for financing. The tradeable government debt of the EU as a bloc, for example, amounts to around 2.6 trillion dollars equivalent, compared to 2.1 trillion here in the US. This will give the euro debt markets a broadly similar size and liquidity as hitherto has been the preserve of the dollar markets. But there are also risks. For example, will the UK economy be able to live comfortably with euro interest rates on a permanent basis? And if problems emerge after EMU begins, will a ‘one-size-fits-all’ monetary policy be adequate to deal with them, particularly if there is insufficient flexibility in product markets and labour markets? A particular concern is the high rates of unemployment in some Continental European countries, and the differing rates between them. The British Government has set a number of economic tests to ensure that, before the UK joins EMU, there will be sustainable convergence between the UK economy and the euro area.
Although differences in policies are not completely unexpected now that the collapse scenario has been reduced, they do show that the international financial architecture still lacks sufficient leverage to coordinate the interests of the different countries. Symptoms of imperfect coordination can be seen across the board today and, unfortunately, the euro area is no exception. As I have mentioned and illustrated above, a lack of coordination leads to national responses which can generate negative externalities. Recovering the sense of common purpose shared at the height of the crisis remains of the essence when designing the right policies at the global level. In these circumstances, it would be of paramount importance to reinforce the efforts to keep cooperation and dialogue open, and this Seminar is intended to contribute to that goal. The other area where international cooperation is definitely needed is in the construction of global safety nets as a way to reduce global financial risks. A wider use could help mitigate certain policies that may be detrimental to global stability from a collective standpoint, such as excessive reserve accumulation. In that respect, additional work is needed to improve the incentives associated with IMF lending facilities for emerging market economies and to address more effectively the traditional problems associated with them (for instance, the stigma problem). International fora are well suited for resolving these coordination problems. That brings me to the end of my introduction to the Seminar.

William L Rutledge: Implementing the New Basel Accord Speech by Mr William L Rutledge, Executive Vice President of the Federal Reserve Bank of New York, at The British Banker’s Association Basel 2 / CAD 3 Half Day Conference, London, UK, 13 March 2003. *  *  *  Introduction Thank you and good morning. It is a great pleasure for me to be here today to offer some thoughts on Basel implementation issues - thoughts that will reflect partly my role as the head of Bank Supervision at the Federal Reserve Bank of New York, and partly my role as a member of the Basel Committee. In that latter capacity, I’d like to begin by offering my thanks for all of the extremely helpful and constructive comments that the BBA has provided throughout the Basel consultative process. In my experience, having a candid dialogue between the industry and the supervisory community is the best way to develop well informed regulatory policy. Given our desire for Basel II to be consistent with the best existing and emerging risk measurement and management practices, getting specific feedback from the industry is particularly critical. It is also critical that we understand calibration issues so that we set appropriate numerical standards; in that connection, I’d like to offer my further thanks to all of the banks represented here that participated in the latest Quantitative Impact Survey. I know that gathering all the necessary data and providing it in the prescribed format was a daunting task.
In many cases this has amounted to 10% or more of GDP. Monetary policy may be side-tracked by the need on the part of the authorities when determining interest rates to take account of the possible implications on banking stability and on other, often more political, policy objectives. 4. Furthermore, in nursing weak banks, the main priority for these banks is likely to be to repair the damage to their balance sheets and they may have little appetite for new lending. This leads to the “credit crunch” phenomenon where even good-quality borrowers find it more difficult to obtain loans when banking stability has been undermined. As the Japanese experience has shown, this weakened ability of banks to lend can frustrate the authorities’ efforts to get the economy moving again after a downturn. The role of bank borrowing in funding growth 5. This possible impairment of the intermediation role of banks would be a particular cause for concern in Asia where the banks have played a substantial role in financing economic growth. By the standards of developed economies, this role for banks in Asia is significantly more important than that of other channels of financial intermediation. This partly reflects the lack of highly developed bond markets in the region, which in itself is also a reflection of the predominance of the banks. 6. Let me digress a little in this connection. There is clear consensus on the need for encouraging the development of bond markets in Asia.

Especially for the AEC that already embarked on Free Trade Area, the increase in trade of goods among member countries needs efficient payment and settlement systems to support their business transactions. The movement of skilled labor also needs payment instruments and products that meet and serve their personal needs. In this part, I would like to highlight key considerations for future development in payment and settlement systems in response to the ASEAN economic region. The first one is Regional Connectivity for which I think many works have been initiated. At the policy level, the ASEAN Central Bank Governors Meeting has endorsed the Working Committee on Payment and Settlement Systems (WC-PSS) since 2010 to promote future enhancement, development and harmonization. The WC-PSS has set a vision to foster integrated, safe, and efficient payment and settlement systems in the region that enable businesses and individuals to make or receive electronic payments with greater convenience. In achieving its goals, the working committee has identified the roadmap for regional connectivity which is divided into three phases. •  In Short Term (2012–13), the roadmap focuses on promoting standardization to enable interoperability and inter-linkage among payment and settlement systems. International standards such as SWIFT message or other message standards are encouraged to be implemented. •  In Mid Term (2014–15), the roadmap focuses on improving existing infrastructure and payment environment. The improvement should meet economic needs, and takes the opportunity to standardize the systems to be ready for long term goal of regional integration.
Mario Draghi: ECB press conference – introductory statement Introductory statement by Mr Mario Draghi, President of the European Central Bank, and Mr Vítor Constâncio, Vice-President of the European Central Bank, Frankfurt am Main, 6 December 2012. *  *  *  Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Rehn. Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Owing to high energy prices and increases in indirect taxes in some euro area countries, HICP inflation rates have been elevated for some time. More recently they have declined, as anticipated, and are expected to fall below 2% in 2013. Over the policy-relevant horizon, inflation rates should remain in line with price stability. The underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. The economic weakness in the euro area is expected to extend into next year. In particular, necessary balance sheet adjustments in financial and non-financial sectors and persistent uncertainty will continue to weigh on economic activity.

The third flaw in our financial system was the inappropriate corporate regime governing the savings banks, which came to account for almost half the Spanish banking sector. If the crisis has shown us anything it is that, despite the good management performance at numerous savings banks, the former ownership regime of those institutions and, in some cases, their reliance on political power, created risks that hindered their proper management. The successive reform measures taken, and in particular the legislation on savings banks and bank foundations enacted last year, are a key qualitative change, requiring that former savings banks over a certain size be transformed into (ordinary or bank) foundations and that those which maintained  BIS central bankers’ speeches  3  a significant shareholding in a bank have sufficient incentive to waive control of the bank and meet, in any event, certain conditions to ensure they are professionally and independently managed. I take this opportunity to confirm that in the next few days the Banco de España will be issuing, for public consultation, a draft circular which implements the abovementioned legislation and sets out in detail some of the requirements that the bank foundations will have to satisfy. 4. The fourth and last main flaw in the Spanish banking system was its surplus capacity, as a result of the tremendous growth in loan demand during Spain’s long period of economic expansion.