samchain/econo-pairs-v1 huggingface dataset:
We applied what we understood to be the lessons from Japan, though with hindsight, perhaps not in every respect as completely as we could have. In particular, Japan’s experience reinforced the lessons of the Great Depression here in the U.S. and made us sensitive to the disinflationary force of an asset price bust and financial  4  However, research suggests that the purchases did reinforce the forward commitment. See, for example, “Policy commitment and expectation formation: Japan’s experience under zero interest rates” Kunio Okina and Shigenori Shiratsuka North American Journal of Economics and Finance, Vol 15, No 1, pp 75–100. 5  See, for example, “Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007”, Kazuo Ueda, Journal of Economic Perspectives, Vol 26, No 3, Summer 2012, pp 177–202. 6  Some commentators prefer the term “North Atlantic financial crisis” as the failure and near-failure of financial institutions was concentrated in the U.S. and Europe. However, the crisis was global in the sense that financial markets transmitted the shock throughout the world and this resulted in a severe global economic downturn. BIS central bankers’ speeches  3  crisis. We recognized that we had to be very aggressive to prevent deflation and deflation expectations from becoming well entrenched. The Federal Reserve reduced short-term interest rates to nearly zero by late 2008 – a little over a year and a half after the initial shock hit in August 2007.

The labor market rigidities, wage and price settings, financial market imperfection, impact of foreign direct investments and many other issues must be appropriately taken into consideration in the monetary policy implementation and probably we have all put in a great deal of effort to accommodate our models to capture these specifics. The last global crisis, with its overall severity, time length and countries coverage reactivated the importance of structural issues for the advanced economies too, pointing to the fact that not always same measure fits any situation, not always same risk affects in a same way and not always same threshold is valid for everyone. Nowadays, we speak about flexible and innovative monetary policy, designed on a broadly based information platform, incorporating structural features of the economies and all specifics of the monetary policy transmission mechanism. Since the onset of the crisis, we have tried to better incorporate financial stability aspects into monetary policy decision making. In addition, we learnt that zero lower bound rate in the advanced economies or historically lowest interest rates in emerging economies were not able to revive credit growth, until we moved towards renovating our toolkit. Nonstandard monetary policy measures in different modalities have been widely used by the central banks around the globe during the crisis period, with the ultimate goal to capture countries’ specific structural features. These tailor made measures proved to have ability for more effective monetary signals transmission, considering the additional impairments of the traditional transmission channels during the crisis.
Of relevance is that excessive risk-taking behaviours featured prominently as a key factor contributing to the Crisis. In addition, what makes the Global Financial Crisis different is the extent of the economic and financial inter-linkages within and across borders, which explains the far-reaching impact of the crisis. While the greater interconnectedness of economies and financial systems has brought about opportunities, it has also resulted in greater risks. The Global Financial Crisis has resulted in the re-assessment of how policymakers view the achievement of macroeconomic and financial stability. There is a growing recognition that emerging risks to macroeconomic and financial stability have to be identified and managed in a more holistic and effective manner. As the economy and financial system grow in complexity, policymakers have to strengthen the understanding of the macroeconomic and financial inter-linkages in order to be able to effectively assess the implications of any potential risk on the economy. Before the Global Financial Crisis, the predominant view was that unfettered markets, selfcorrections and minimal interventions would deliver the best economic outcomes. However, recent experiences have shown that policy interventions to correct market misalignments after a crisis may prove too late as the aftermath could be extremely costly. This, therefore, call for policies to be pre-emptive rather than reactive. For policymakers, the aim is to preserve macroeconomic and financial stability, and build the country’s resilience to shocks. Macroeconomics stability is a very important prerequisite for businesses and individuals to undertake economic activities.

BIS central bankers’ speeches  5
As we revisit this dramatic moment in monetary history, we need to remember that it occurred against the backdrop of nearly 15 years of disillusion regarding the ability of activist “Keynesian” economic policies to guarantee low inflation and full employment. From 1965 onwards, inflation had been on the rise and unemployment surged in the 70’s, following the first oil shock. In the beginning of the 80’s, it appeared that fiat money was inherently prone to cause periodic bouts of inflation and that there was little one could do about it. (see annex for graph 1) Since 1979, the global monetary environment has evolved dramatically. Achieving and maintaining price stability has become the undisputed guiding principle of a vast majority of the world’s central banks. Price stability ensures the signalling power of prices, thus bolstering the efficiency of the market mechanism. By preserving purchasing power, it facilitates long-term planning and induces long-term investments. Price stability also prevents social injustices from emerging between debtors, workers and retirees. Finally, price stability minimizes tax related distortions linked to the interaction of inflation and the tax code.1  1  see Martin Feldstein (1983): “Inflation, tax rules, and capital formation”, Chicago: University of Chicago Press. BIS Review 44/2003  1  The determined focus of monetary policy on price stability has contributed to anchoring the public’s inflation expectations at low levels.

This insight has tremendous significance for Switzerland where, as I have attempted to show, much of the non-tradable sector of our economy remains tied up in a structural straight jacket. Eliminating this straight jacket or at least unbuttoning it would have wide-ranging positive effects on the Swiss economy. If our legislative authorities rise to that challenge, they are likely to replicate the competitionboosting effect that the forces of globalization have exerted on the external sector in the domestically oriented sectors of our economy. Higher productivity growth rates would ultimately lead to higher growth rates and thus reverse a worrying trend of declining relative growth dynamics in Switzerland in comparison with other OECD countries.11 Such productivity driven growth dynamics should lead to lower prices across a sizeable part of our economy. Obviously, this statement needs to be qualified. he Swiss economy will always remain vulnerable to developments abroad. A significant demand or supply shock to the global economy could reverse the beneficial impact on domestic prices of further domestic liberalization. For example, widespread protectionist measures rolling back the achievements of globalization or widespread geopolitical conflict and uncertainty would certainly threaten the broad achievements with regard to price stability. Nonetheless, breaking up the rigidities impeding competition in the domestically oriented sectors of our economy has every chance of rendering monetary policy not only more  10  Alan Blinder (1998): “Central Banking in Theory and Practice”. Cambridge: MIT Press.
But his view, which I share, is that there would be a “a strong, though not irrebuttable, presumption of denial [of a merger or acquisition] by any firm that falls in the higher end of the list of global systemically important banks…”5,6 Another step for dealing with the firms that might be viewed by some as already TBTF is to understand better the interconnections and pathways through which the distress or failure of one firm impairs the larger system and causes harm to society. We have made progress through the supervisory process in mapping out critical activities performed by firms. Also, we have identified a number of areas, such as collateral management, where better practices could both improve the safety and soundness of the individual firm and reduce the negative externalities generated by a firm’s failure. Work is also underway to evaluate what changes would be required to make the future bankruptcy of large complex firms less disruptive, while also developing an alternative means for the orderly resolution of such firms outside the normal bankruptcy process. The costs to society of large complex financial firms failing can be reduced at least to some degree by having firms, working in conjunction with their regulators, “pre-plan” their own failure through the so-called “living will” process. The largest and most systemically important  5  See Governor Daniel K. Tarullo, “Financial Stability Regulation”, October 10, 2012.

In my view, this initial exercise has confirmed that we are a long way from the desired situation in which large complex firms could be allowed to go bankrupt without major disruptions to the financial system and large costs to society. Significant changes in structure and organization will ultimately be required for this to be achieved. However, the “living will” exercise is an iterative process, and we have only taken the first step in a long journey. The second way to potentially minimize the negative externalities from a firm’s failure would be to avoid a bankruptcy proceeding altogether and instead resolve the firm under the Dodd-Frank Act’s Title II orderly liquidation authority.7,8 The “single point of entry” model has much promise, but much remains to be done before it could be implemented with confidence for a globally active firm. Title II authority is U.S. law. Subsidiaries and affiliates chartered in other countries could be wound down under the bankruptcy laws of those countries, if authorities there did not have full confidence that local interests would be protected. Certain Title II measures including the one-day stay provision with respect to OTC derivatives and other qualified financial contracts may not apply through the force of law outside the United States, making orderly resolution difficult. The other essential dimension of solving TBTF is to make the financial system more robust – addressing structural vulnerabilities that tend to amplify shocks rather than absorb them.
This would not only promote the opening of banking accounts amongst this target group but would also enable them to enjoy lower cost of financial services and better means of savings, thus benefiting the economy as a whole. As the electronic payment channels become more easily accessible, user-friendly and offered at a low cost, it would thus provide the opportunity to shift the remittance flows from the informal to formal channels. Indeed, electronic payments can be one of the strategic tools to meet these objectives and achieve higher economic growth. Electronic payment increases operational efficiency and improves productivity levels through expedient payments and receipts of funds. Electronic payments would also provide the speed and convenience of making payments from any place or time. It also reduces costs through the reduction of redeployment of resources used for handling cash and cheques. Accelerating the country's migration to electronic payments has therefore become a part of Malaysia's larger national agenda to increase the efficiency of  BIS Review 69/2008  1  the nation's payment systems which would ultimately improve the competitiveness of our economy. Cash payments in Malaysia still account for a large portion of the number of transactions in the economy. Going forward it is expected that its use will level off and stabilise with the increased use of electronic means of payments. Credit cards, ATM cards, debit cards including the e-purse application embedded in the MyKad are among the card payments possibilities in Malaysia.

Offsetting the negative effects of sub-zero interest rates has been a key topic for discussion since March, when remarks made by ECB President Mario Draghi in Frankfurt led to speculation he was considering the introduction of a tiered central bank deposit rate. —NEGATIVE RATE CONCERN 1/2  BIS central bankers' speeches  "There are good reasons to be concerned about the very low or negative rates, particularly if they persist. Banks may be less motivated to improve efficiency, given their low funding costs. At the same time, the asset side of their balance sheets may erode and is exposed to a future turn of the cycle, and this risk needs to be adequately priced." Bulgaria, which joined the European Union in 2007, already meets key criteria for adopting the euro, and its national currency is expected to enter the EU’s Exchange Rate Mechanism II later this year. Nevertheless, the country is unlikely to enter the currency union until at least mid-2022, Valdis Dombrovskis, EU Commission Vice-President for the euro said in January, with Radev agreeing that obstacles to accession remain. "We need to speed up the process of real convergence,” he said. “The challenges we face are structural, rather than fiscal or monetary ones. More needs to be done also on the institutional front. While the institution of public financial management is exemplary, as evidenced by results, some other institutions need major improvement."
But usually one is then comparing it to countries that have been hit harder by the crisis, such as the United States and the United Kingdom, where housing prices have already fallen substantially and one therefore does not need to worry so much about a continued upturn from an already high level. Moreover, the relationship between the policy rate and credit growth, which is of course important in this context, is not straightforward. Figure 3 shows, for instance, that credit growth in Sweden is higher than in the euro area, despite the Riksbank’s policy rate being higher than the ECB’s. The Riksbank’s strategy has been to combine a marginally higher repo rate with communication that emphasises that we find the development of high credit growth worrying. The slightly higher interest rate does have some effect in itself, but perhaps its main function is as a concrete “reminder” of the risks, making it an important part of the communication. One may of course discuss how effective this type of policy is. However, I am fairly certain that, combined with the measures taken by Finansinspektionen (the Swedish Financial Supervisory Authority), it has had at least some effect in the desired direction – that both indebtedness and housing prices in recent years would otherwise have increased more and faster than they actually have done. I am even more convinced that the policy and the communication surrounding it have helped increase awareness of the problems.

This in turn has led to a fall in demand that has tended to be fairly long-lived.4 In many areas, households and companies have moreover experienced difficulty in meeting their loan obligations and the banks have suffered loan losses. The much weaker economic activity and a banking system in need of support have in turn led to a tangible deterioration of public finances. The final result of the high indebtedness and overheated housing market has thus been macroeconomic instability in the form of a deep and prolonged recession. Moreover, monetary policy in many countries has become less effective as the policy rate has reached its lower bound and central banks have had to turn to new and untried methods of conducting monetary policy, and also because households have reacted less than normal to monetary policy stimulus, as they have given priority to consolidating their balance sheets.5 Trying to prevent this type of development with substantial macroeconomic instability must indeed be part of the Riksbank’s task. As I have already noted, one can make different assessments of how great is the risk that this negative scenario will occur and thus of the policy that should be conducted. But arguing that it is not in the Riksbank’s mandate, as a matter of principle, to take into account this type of risk and reduce it to the best of our ability – that I find quite difficult to comprehend.
Some of the gains of the past few years have dissipated, and our disposable income might fall by close to 10 per cent in 2009. In periods of substantial uncertainty, investors will seek to repatriate investments in foreign currency. The fragility of the Norwegian krone was illustrated when investors fled the currencies of small countries, and the krone weakened considerably. When speculators withdrew, daily fluctuations increased and hedging against exchange rate volatility became  BIS Review 37/2009  5  more expensive. The krone fell to a record-low level in December last year, but has appreciated since then. Consumer price inflation reached a peak in October of 2008, and has slowed markedly thereafter and was 2.5 per cent in February. Underlying inflation is still above the inflation target, and stood at approximately 3 per cent in February. Even though inflation has been falling, the rise in prices has been somewhat sharper than expected recently, particularly for imported consumer goods. The depreciation of the krone last autumn has probably fed through to prices more rapidly than usual. Nevertheless, looking forward inflation will abate. Norges Bank has over a number of years focused on anchoring inflation expectations around  6  BIS Review 37/2009  the target of close to 2.5 per cent over time and given weight to predictability, with a recognizable response pattern. The downturn has not affected long-term inflation expectations to any great extent.

There is a risk that the structural changes brought about by the crisis may result in persistently lower productivity growth. It appears that inflation will remain considerably lower in the years ahead than we expected in December. Both the objective of stabilising inflation around the target and the objective of ensuring stable developments in the real economy suggest that the interest rate should be low. Interest rate setting can also be assessed using simple monetary policy rules that prescribe an interest rate path based on actual inflation and output. The calculations are based on projections for inflation and output in the current Monetary Policy Report. The different rules yield somewhat divergent results, but all of them indicate a decline in the interest rate. Rules do not capture possible restrictions in the supply of credit that may affect the monetary policy transmission mechanism. 12  BIS Review 37/2009  Norges Bank has estimated a simple interest rate rule based on the Bank’s previous interest rate setting. 5 The rule includes developments in inflation, wage growth, mainland GDP and central bank key rates abroad. The interest rate in the previous period is also important. The key rate is now below the lower end of the interval projected. Norges Bank has given weight to staving off particularly adverse outcomes and therefore brought forward the decrease in the key policy rate last autumn.
BIS Review 162/2009  7  Conclusions My conclusion is thus that there may be a possibility for central banks to conduct a policy that counteracts the emergence of bubbles in asset prices for the purpose of preventing them from arising and having substantially negative effects on the real economy. However, this should not be done mechanically, and asset prices should not be target variables for monetary policy. However, together with, for instance, credit growth and indebtedness they may be used as indicators that can be highlighted when interest rate decisions are taken, as a broken bubble means that resource utilisation in the longer term risks being too low and inflation will therefore undershoot the target. More research is needed though in this field to improve the analysis. It is desirable that better indicator models are developed to detect bubbles and that the financial market’s functioning is better incorporated into the models that are regularly used in the forecasting work. The process has already started, both at the Riksbank and in the international cooperation. I consider this to be a positive development. I also consider that one should examine the possibility to extend the instruments at the disposal of the Riksbank so that we can take other measures than raising the policy rate when the risk of financial bubbles is assessed as high. This could be a question of allocation of responsibility between public authorities and of extended power of authority for the Riksbank.

Developments during the second quarter of 2010 confirmed the CBT’s assessment that the increase in inflation since the last quarter of 2009 was temporary. The April Inflation Report stated that aggregate demand conditions would support disinflation and that the rise in inflation could be attributed to factors beyond the control of monetary policy such as increases in food, energy and administered prices. In fact, with the reversal of these adverse factors, consumer prices declined by 0.3 percentage points and annual inflation came down to 8.37 (Figure 7). Here I would like to underline that this was the first decline in consumer prices ever in a given quarter (Figure 8). BIS Review 133/2010  3  The course of food prices was instrumental in the favorable outlook of inflation in the last quarter. After climbing dramatically in the past two quarters and prompting consumer prices to soar, food prices plunged sharply during the second quarter of 2010 (Figure 8). The fall in food prices was attributable to the significant decline in unprocessed food prices (Figure 9). In addition, the adoption of import regulations for red meat at the end of April was another factor that slowed down unprocessed food prices more than expected (Figure 10). Besides, processed food prices also decreased during the last quarter, pushing food prices down even further (Figure 9). The favorable outlook of inflation was not only limited to food prices; services and core goods prices also saw a significant slowdown in the second quarter of the year (Figure 11).