samchain/econo-pairs-v1 huggingface dataset:
Profit margins 24  24  23  23  Trade  22  Transport etc  22  21  21  20  20  19  19  18  18  17  17  16  16  15  15  14  14 1995  1997  1999  2001  2003  Note. Level as per cent of the value of gross output. Source: National Institute of Economic Research. BIS Review 25/2005  11

Ravi Menon: Regional safety nets to complement global safety nets Welcome remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the opening ceremony of the ASEAN+3 Macroeconomic Research Office (AMRO), Monetary Authority of Singapore, Singapore, 31 January 2012. *  *  *  Director, AMRO, Wei Benhua, Counselor, AMRO, Yoichi Nemoto, Head, Civil Service and Permanent Secretary (Finance) Peter Ong, Distinguished guests, ladies and gentlemen. Good morning. Genesis of the Chiang Mai Initiative 1. Twelve years ago, we took the first steps in a momentous journey that has led us here today. 2. It was the aftermath of the Asian Financial Crisis. The Crisis had ravaged several economies in the region and was a wake-up call to all of us. Rapid economic growth was not enough. To sustain growth and foster stability, sound macroeconomics and strong financial supervision mattered. Asian economies had to get their domestic acts together. And they did, with painstaking reforms over the last 15 years. So, when the Global Financial Crisis hit Asia in 2008/2009, Asian economies were shaken, but did not keel over. 3. The Crisis taught us another lesson: had the region better harnessed the resources it had available, it might have been in a stronger position to deal with the crisis. It was this conviction that provided the impetus for the first proposals for a regional financing arrangement. 4.
If the central bank feels obliged to “pre-announce” a policy path in advance this could compromise its ability to stabilise demand and inflation  Results from a simulation of a small macroeconomic model under alternative assumptions about monetary policy and the average distance to the lower bound. Macroeconomic volatility is measured using a simple “loss function” that weights the variance of inflation and the output gap. The y-axis shows the square root of the loss function, scaled to 1 for the case of commitment policy with an average distance to the lower bound of 5pp. Sources: See Appendix for further details. Conclusion It would be nice if interest rates were more predictable. In fact, it would be nice if everything was more predictable. But many things, including stuff that might otherwise disturb inflation over the medium term, are not. And because it’s the job of monetary policy to respond to such things, interest rates are also unpredictable. There are particular circumstances in which committing more unambiguously to a future path of interest rates can be an advantage. If there’s a risk of deflation but the policy rate is stuck at the lower bound, and QE is for some reason thought to be ineffective, a declaration that policy will remain accommodative, even in the event of more inflationary pressure in the future, can in principle stimulate demand today. But even when such a commitment is believed, the effects are probably smaller than simple economic models tend to assume.

If it were possible to eliminate or reduce at least one source of unpredictability, wouldn’t that be a good thing? And since the MPC is in control of interest rates why can’t it just tell us what it’s going to do? The problem is that we can’t be sure. Interest rates are not an end in themselves. They’re a means of meeting our objectives: the stabilisation of inflation over the medium term and, subject to that, the stabilisation of economic activity. And because there are lots of unpredictable shocks hitting the economy, things that would otherwise (and often do) move output and inflation around, the appropriate path of interest rates is necessarily unpredictable as well. The skipper of a boat, adapting to a skittish wind, and interested in making the journey as smooth as possible, may have perfect control of the tiller. But that doesn’t mean she can tell you exactly which position it will be in at every point in the future. That will depend on the direction of the wind at the time. It’s not that monetary authorities are unconcerned about expectations of future interest rates. Quite the opposite: these expectations are central to the transmission of policy. We directly determine only one particular – and very short-term – interest rate (what commercial banks get paid on their overnight deposits, or “reserves”, at the central bank). But demand and spending depend more on longer-term interest rates. In the UK, around half of corporate borrowing has a maturity of three years or more.
Chart 3: Annual private sector underlying regular pay growth  Sources: OECD and Bank calculations. Notes: Wage equation based on Yellen (2017). Short-term inflation expectations are based on the Barclays Basix Index and the YouGov/Citigroup one year ahead measure of household inflation expectations. Slack is based on the MPC’s estimate of the unemployment gap. Productivity growth is based on long-run market sector productivity growth per head. The unexplained component is the residual. Underlying pay growth represents Bank staff estimates of private sector regular pay adjusted for furlough and compositional effects. The third development I want to draw out is the significant recent news on fiscal policy. But before explaining why this matters for monetary policy I will make a couple of points about the role of the MPC and how we treat fiscal policy in our forecasts. First, it is not part of the remit of the MPC to comment on whether a particular tax or spending policy is the right action to take or whether the overall stance of fiscal policy is appropriate. However it is part of our job to comment on and respond, as necessary, to the impact individual measures or the overall stance of fiscal policy have on demand and inflation. Fiscal policy rightly came to the fore during the pandemic, and the furlough scheme in particular was a major fiscal intervention which provided very significant support to demand and to the labour market, up until it ended a year ago.

The earlier spike in inflation largely reflects the effects of the rapid reopening of the economy, which pushed supply and demand in extreme ways. In fact, we are now seeing some of the pandemic-related spikes retrace, including prices for lumber, used vehicles, and rental cars. This process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede. As the economy gets through these highly unusual dynamics, I expect inflation to come back down to around 2 percent next year. One reason I expect inflation to moderate is that measures of underlying inflation and longer-term inflation expectations have been relatively stable during this period of otherwise volatile inflation readings. There are two important aspects of longer-term inflation expectations: their level and their sensitivity to economic conditions and, in particular, to inflation. In terms of the level of inflation expectations, survey- and market-based measures of longer-term inflation expectations have reversed the declines of the past several years and are now around levels seen seven or eight years ago. They currently appear to be well aligned with our 2 percent long-run inflation goal. A second issue is how well anchored inflation expectations truly are, and whether there is a risk that they could drift higher in response to the elevated rates of inflation we have been experiencing. A group of economists at the New York Fed took a closer look at recent behavior of 2/4  BIS central bankers' speeches  inflation expectations from the Survey of Consumer Expectations.
9  Defining price stability in the context of low natural interest rates In the second part of my address I will take a longer-term perspective and reflect on the changes occurring in the implementation of monetary policy in the advanced economies. In the years prior to the 2007–2012 crisis, which in our case coincided with the early years of the ECB, a certain consensus emerged among the advanced economies regarding the role and functioning of central banks. These were designed as independent entities, that is, not subject to direct control by governments, with a clear mandate to ensure stable prices, and also in some jurisdictions, such as the United States, full employment. The price stability mandate is normally articulated as a numerical inflation objective, frequently 2% or, as in the case of the ECB, a level below but close to 2%. To achieve its price stability target, the central bank adjusts the general level of interest rates on the funding raised – via bank loans or in the debt markets – by agents in the real economy (businesses, households and governments). Although the central bank controls the nominal interest rate, it is the “real” interest rate – that is, the nominal rate less expected inflation – that is relevant for households’ and businesses’ spending decisions. For instance, a nominal interest rate of 2% when expected inflation is 4% is much more expansive than a nominal interest rate of 1% in a noninflationary setting.

1 See Article 127 of The Treaty on the Functioning of the European Union. 2 Jean-Claude Trichet, 2014: “Central Banking in the Crisis: Conceptual Convergence and Open Questions on  Unconventional Monetary Policy” Business Economics, Palgrave Macmillan; National Association for Business Economics, Vol. 49(2), pp. 74–84, April. www.perjacobsson.org/lectures/101213.pdf 3 Kydland, F. and E. Prescott (1977) “Rules rather than discretion: The inconsistency of optimal plans”, Journal of  Political Economy, 85(3), pp. 473–92. 4 Alesina, A. and L. Summers (1993) “Central bank independence and macroeconomic performance: Some  comparative evidence”, Journal of Money, Credit and Banking 25(2), pp. 151–162. 5 December 2018 Eurosystem staff macroeconomic projections for the euro area. 6 OECD Economic Outlook, November 2018. 7 Bank for International Settlements: Credit to non-financial corporations from all sectors at market value –  Percentage of GDP. March 2006 – June 2018 (unconsolidated data). 8 “The cost of deficiencies in euro-area economic policy coordination” Quarterly Selection of Articles No. 46,  Banque de France, summer 2017. 9 Address given by Pierre Werner, Luxembourg Prime Minister and Foreign Minister, on 30 September 1965 to the  Belgian Chamber of Commerce in New York. 6/6  BIS central bankers' speeches
The transition to net zero will likely entail the biggest economic and societal transformation since the Industrial Revolution. As the environmental scientist Vaclav Smil, in his book How the World Really Works, declares rather ominously, “We are a fossil-fuelled civilization whose technical and scientific advances, quality of life, and prosperity rest on the combustion of huge quantities of fossil carbon.” To transit from such a fossil fuel civilisation to a net zero world will require considerable economic restructuring, significant technological breakthroughs, and substantial financial investments. Getting to net zero will not be easy and will require five transformative changes: a price on carbon; a shift to cleaner energy; a greening of the economy; a pivot to transition finance; a sustainable lifestyle. 2/9  BIS central bankers' speeches  CARBON PRICING A meaningful price for carbon is the single most important measure to help decarbonise the economy. A carbon price can be achieved in three ways: a tax on carbon emissions; or a system for trading emissions permits; or regulatory limits on emissions that could be translated into an implicit carbon price. Without getting the price of carbon right, most sustainability efforts will not make economic sense and not gain traction. The right price on carbon sends a powerful signal across the entire economy: it induces consumers to reduce demand for carbon-intensive goods and services; firms to move to low carbon technologies; innovators to invent and develop new low carbon products and processes; and investors to fund and commercialise them.

It is important, but especially if you have been tied to the euro for a very long period of time. It is of crucial importance that a country’s economic policy mix as a whole is credible and consistent. Based on our own experience, we can say that much of the impact was already felt even before formal euro accession in terms of the investment flows and in terms of the restoration of confidence. Finally, what have been some of the experience over the last more than two years? The precise impact of the adoption of the euro is very hard to determine as there were so many other things going on, most notably the global financial crisis. Future generations of economists, with the benefit of hindsight and data will be better placed than us to make a firm evaluation of costs and benefits. Nevertheless, we can point to several positive developments which appear to be related to the broader agenda of reforms and policies, including euro adoption. Most notably, the Estonian economy has successfully weathered a fragile global economy and come through the uncertainties within the euro area. Over the last few years, our export sector has led the economy to a path of relatively rapid and well-balanced growth. That has, in turn, created the scope for a still quite significant contribution from domestic demand to growth. Indicators of better balance include a much lower current account deficit, better consistency between productivity and wages and lower private sector indebtedness.
On 9 August 2007 we were the first central bank worldwide to recognise the tensions on the money market and to take important steps in the context of our liquidity management. With a very flexible liquidity management we ensured that solvent banks did not get into difficulties because of liquidity constraints. This has been the case in particular since September 2008 after intensification of the financial turmoil, which led to a very sharp rise in tensions. When reacting to the financial market turmoil, the ECB has always differentiated between liquidity management on the money market and its monetary policy stance ensuring price stability. We lowered the key interest rates when there was increasing evidence of inflationary pressures diminishing. The decline in the inflation rates is due mainly to falling commodity prices and a significant slowdown in economic activity. Against this background, the Governing Council of the ECB lowered the key interest rates by 2.25% between October 2008 and January 2009. This is an unprecedented reduction in such a short period. In this way we have taken account of the easing inflationary pressures in the light of the economic downturn. The governments in Europe have also reacted rapidly, resolutely and in a coordinated way to the financial market upheaval: they have prevented banks from collapsing. And they extended a line of defence against a possible systemic solvency risk, especially through credit guarantees and recapitalisation measures. This prevented a systemic crisis and created a basis for fresh confidence.

We identify common control profiles for process types and assess their effectiveness based on risk ratings and past risk events. That informs the second line’s recommendations to business areas on control protocols. We also use the common control profiles to assess where we are over-controlled and have the opportunity to shift resources to other priorities. The risk information collected and the risk analysis performed by the second line is the basis for operational risk reporting in the Bank’s risk profile report that is presented to the Risk Subcommittee, the Management Committee, and the Audit and Risk Subcommittee. The risk profile report shows the Bank’s most significant risks (including operational risks) along with a risk rating and the status of mitigating actions and mitigation plans. In addition, the report highlights significant and notable risk events along with the event’s impact, root causes, and remediation activities. We have found that the risk profile report provides the necessary flow of information to create meaningful committee dialogue around risk issues, feedback to business areas, coordination across Groups and lines of defense, and when necessary, additional escalation. Past, present, and future As the theory and practice of operational risk management and the complexity of our operations have evolved, so has our approach. In the mid-2000’s, the Bank formalized its operational risk program.
However, and as I discuss below, this may not be enough to ensure macroeconomic stability. Monetary policy in the context of an inflation targeting regime also contributes to stability by leaning against the wind. Capital inflows that lead to an appreciation of the currency reduce inflationary pressures allowing for an interest rate cut. This, in turn, reduces incentives to capital inflows and takes pressure off the currency. This phenomenon has been recently experienced in Chile. In recent weeks, the peso has appreciated significantly. At the same time the economy has been showing a rapid expansion: despite the earthquake we suffered this year growth is expected to be between 5% and 5.5% this year and between 5.5% and 6.5% next year. Although in our latest Monetary Policy Report we said that the bank will keep withdrawing the significant monetary stimulus, without the strengthening of the currency the withdrawal would certainly be faster. However, these macro policy actions may not be enough, in particular because capital inflows may be a source of bubbles in domestic asset prices. Indeed, in emerging markets bubbles normally take the form of an exchange rate appreciation. In this way, all assets become overpriced, not necessarily by higher prices in domestic currency, which may also be happening, but by increasing the value of the currency. A much debated issue in industrial countries has been whether tightening monetary policy could help burst a bubble in asset prices.

5  See IMF (2010), chapter 2, and references contained in it, for a discussion of balance sheet and asset co-movement approaches to determining systemic institutions. 6  Actually, the SBIF may deny authorization to any bank merger, acquisition of assets of a bank by another banking entity, or taking control of two o more existing banks by the same person or group, or to increase substantially the existing control if the acquiring bank that performs said merger, acquisition or the resulting group of banks reaches a significant market share. In order to deny authorization, the SBIF needs prior approval by the Central Bank Board, issued by the majority of all Board members. 6  BIS Review 124/2010  Figure 1 Net flows of investment funds to emerging economies (billions of dollars accumulated in twelve moving months, weekly data) Equity flows  Total flows  Emerging (1) Latin America Total equity  120  Asia ex-Japan Other emerging (2)  120  80  80  40  40  0  0  -40  -40  -80  Total  Total fixed income  Total equity  -80 06  07  08  09  10  06  07  08  09  10  (1) Global Emerging Markets (GEM). (2) Middle East, Emerging Europe and Africa. Source: Emerging Portfolio Fund Research. Figure 2 Monetary Policy Rates in the world (1) (percent)  Developed economies (2) Chile (4) Survey emerging ec. 35  Emerging economies (3) Survey developed ec.
This highlights the need to focus reform efforts on the international monetary and financial system (IMFS). There are, therefore, both “good” and “bad” imbalances. On the one hand, the advantage of globalisation is that it allows savings to flow to where the rate of return on new investment is highest. On the other hand, imbalances can be a symptom of distortions to the price signals in the economy, leading to unsustainable patterns of capital flows and spending that are costly to correct. Distinguishing between them will never be easy, but is necessary when setting monetary, fiscal and financial policy. But we should assess imbalances in terms of whether their consequences are “good” or “bad” – that is, whether they are creating a distorting externality. So how should we reform the current system of monetary arrangements? If problems abound, there is certainly no shortage of proposed solutions. Since Bretton Woods, there have been regular suggestions for changing from fixed to flexible exchange rates, or the other way round, returning to the gold standard, creating a new international currency, changing the composition of the currency basket comprising Special Drawing Rights (SDRs), abolishing or introducing controls on capital flows, and providing new ways of holding currency reserves. What is much less clear, however, is the problem to which these proposed solutions are thought to be the answer. I have suggested that we need to analyse more carefully the imperfections, or frictional costs, which make a regime of floating exchange rates an insufficient answer in itself.

Their need to deleverage and reduce borrowing means that if another abrupt adjustment is to be avoided, they cannot risk taking too long to rebalance their economies. In contrast, many of the emerging economies continue to require rapid economic growth and abundant employment opportunities in their export industries to ensure adequate levels of employment for their vast populations. As a result, policymakers in countries like China quite simply see limits to the extent and speed at which they should expand the share of domestic demand in their economies. They do not want to rebalance their economies too quickly. Of course, ex post there must be consistency between these two strategies as demand in the world as a whole must “add up”. The current pattern of demand in the world economy is unsustainable. The political tension generated by the divergent preferences of surplus and deficit countries risks moves towards protectionism, as happened in the 1930s. So there must be scope, in the short term, for a “grand bargain” to adopt a set of policies that would support an agreed path of rebalancing and avert a move towards protectionism. Such a “grand bargain” should be the central objective of the G20’s Framework for Strong, Sustainable and Balanced Growth. It would require a shared analysis, seemingly absent at present, of the relative importance of the “good” and “bad” aspects of the imbalances.