samchain/econo-pairs-v1 huggingface dataset:
How quickly to remove monetary policy accommodation—is a gradual path of removal still appropriate now that the unemployment rate is 4.1 percent? 2. How far to go in removing monetary policy accommodation—will monetary policy have to move to a somewhat restrictive setting in the years ahead? 1/7  BIS central bankers' speeches  3. How should the FOMC factor fiscal policy and trade policy developments into its monetary policy decisions? I will take each of these in turn. As I see it, a gradual path of interest rate increases remains appropriate. Even though the unemployment rate is low, inflation remains below our 2 percent objective. As long as that is true, the case for tightening policy more aggressively does not seem compelling. My conclusion is reinforced by the fact that we do not know with much precision how low the unemployment rate can go without prompting a significant rise in inflation. We do not directly observe the nonaccelerating inflation rate of unemployment, or NAIRU. Rather, we only infer it from the response of wage compensation and price inflation as the labor market tightens. Also, the U.S. labor market may have more slack than the 4.1 percent unemployment rate suggests. Over the past six months, the unemployment rate has remained steady despite robust payroll gains. As the labor market has improved, more people have been actively seeking employment. As a result, the labor force participation rate has flattened out despite the ongoing aging of the workforce population.

But set those tools to one side for a moment. Monetary policy could be used to reach a point more like P in Chart 5, with less variation in the output gap and more variation in inflation than we have actually experienced over the past 20 years. Put another way, higher interest rates in the run up to the financial crisis might have reduced the impact of the subsequent bust, at the cost of below-target inflation and below-trend output before the crisis hit.2 In practice new macroprudential tools and better micro-prudential supervision will improve the possibilities available to monetary policymakers. Having additional instruments in effect brings about a favourable shift in the Minsky-Taylor frontier (or surface) which defines the possibilities open to policymakers.3 Nevertheless, consistent with the new remit4 given to the Monetary Policy Committee by the UK Government last month, the experience of recent years suggests that there may be  2  A more detailed appraisal of this argument is contained in “Twenty years of inflation targeting”, a speech by Mervyn King (2012), available at http://www.bankofengland.co.uk/publications/Pages/speeches/2012/606.aspx. 3  A social planner would use both instruments together to pick the welfare maximising point on the frontier / surface, and in the UK the Monetary Policy Committee is expected to work closely with the Financial Policy Committee which has the statutory power to deploy macro-prudential instruments.
The rise in prices for domestically produced goods and services slowed somewhat towards the end of 2005 and into 2006. The 12-month rise in prices for these products is estimated at 1.6 per cent in April, adjusted for the effects of lower maximum day-care rates. However, several factors point towards rising inflation. Capacity utilisation in the Norwegian economy is increasing, and tighter labour market conditions may result in higher wage growth in the coming years. The rise in oil prices is resulting in higher input costs for producers. As a rule, monetary policy shall not take account of the direct effects on consumer prices resulting from changes in the interest rate level, taxes, excise duties and extraordinary, temporary disturbances. However, there is no certain method for distinguishing extraordinary, temporary disturbances from more long-lasting price changes. The inflation measure CPI-ATE excludes the effects of changes in taxes and energy prices. Norges Bank has given weight to this indicator of underlying inflationary pressures in the economy, but also keeps an eye on other indicators. The 12-month rise in the CPIATE adjusted for the effects of lower maximum day-care rates is estimated at 1.0 per cent in April. BIS Review 41/2006  3  However, the CPI-ATE not only strips out temporary effects of changes in tax changes and fluctuations in energy prices, but also trend changes in these variables. Thus, this indicator is not a perfect measure of underlying inflation.

It is likely that continued strong growth in output and employment will result in a higher rise in prices and costs, but it may take time. According to Statistics Norway’s Labour Force Survey (LFS), employment growth picked up markedly towards the end of 2005 and into 2006. LFS unemployment fell again in January. The number of registered unemployed fell somewhat in April and now stands at 2.8 per cent. Measured in per cent of the labour force, seasonally adjusted LFS unemployment was 3.9 per cent. The labour supply is also being influenced by an increase in inward labour migration from the new EU accession countries. The Central Office – Foreign Tax Affairs recorded an increase of about 7400 employees from the new EU accession countries from 2004 to 2005. This figure covers employees in both Norwegian and foreign enterprises. The size of the actual supply of labour behind these figures is uncertain, because there is no information about the duration of such employment relationships. On balance, however, there have been signs that the use of foreign labour has contributed to dampening pressures on real economic resources through the upturn. The effect has probably been most marked in the construction industry, as evidenced in particular by the fact that wage growth remained moderate last year, despite the very high level of activity. The figures for the first quarter of this year indicate that inward labour migration is still rising. There is competition for the best labour in the EU countries.
We had experienced a long period of growth and the labour market had begun to tighten. Growth was still good, but we saw a slowdown coming, although it appeared that it might be fairly mild. We were facing a situation where the risk that high energy and food price increases would spread to other prices must be weighed against the risk of a weak real economy. There was much talk of the risk of stagflation, that is, a combination of an economic slowdown and rising inflation. We faced a situation in which reaching a decision became ever more difficult. This became clear when we Executive Board members made slightly different assessments in summer and early autumn 2008 of what kind of interest rate policy was required. However, the  4  BIS Review 38/2009  economic downturn was much quicker and deeper than we had expected, partly as a result of the financial crisis which came to affect us more tangibly in the autumn. This was unfortunate for the economy, but it simplified our decision-making. We could see ahead of us that inflation would be far below the target for a period of time, and we wanted to avoid this period from being a long one. We have been able to cut the repo rate by 3.75 percentage points in less than six months, which means that the repo rate is now at a historically low level.

But it can have a stabilising effect in the short run, particularly if inflation expectations are well-anchored so that temporary changes in inflation are not perceived as permanent. However, this means that a conflict may arise between the short run and the long run. A central bank prefers inflation expectations to be stable and low, as this is best in the long run. The central bank may then prefer to conduct a policy that is perceived as sufficiently tight for inflation to remain low, as this creates low inflation expectations. But once inflation expectations are low, it may be tempting to allow the market to be ”surprised” by a more  1  Phillips actually studied the relationship between wages and unemployment, but later studies indicated a similar relationship between inflation and unemployment, Phillips, A. W, (1958) “The relationship between unemployment and the rate of change of money wages in the United Kingdom, 1861-1957”, Economica, 25, s. 283-299. 2  Friedman, M, (1968). “The role of monetary policy”, American Economic Review, p. 58, 1–17. 2  BIS Review 38/2009  expansionary policy that leads to lower unemployment, as it takes time before individuals and companies adapt their behaviour. In this way the central bank risks finding itself in a vicious circle of periods where inflation is allowed to soar, followed by periods where inflation expectations have to be brought down again at a large cost to the real economy.
As put by José Ortega y Gasset, the famous Madrid-born philosopher: “Life is a series of collisions with the future; it is not the sum of what we have been, but what we yearn to be”. Thank you for your attention. i  European Commission, Standard Eurobarometer 85, July 2016. European Commission, European economic forecast, Autumn 2016. iii Matthieu Bussière, Laurent Ferrara and Juliana Milovich, ‘Explaining the recent slump in investment: the role of expected demand and uncertainty’, Banque de France WP No. 571, September 2015. iv World Bank, Doing business 2017 report. ii

In both cases, the crises followed a period of strong growth, rapid credit expansion and sharply rising asset prices. Prior to the Asian crisis, there was indiscriminate lending to the corporate sector. Investment activity was excessive, with the ratio of investment to GDP exceeding  1  L. Laevan and F. Valencia, "Systemic Banking Crises: A New Database", (Sept 2008) International Working Paper of the International Monetary Fund, WP/08/224. BIS Review 145/2008  1  35% for many economies in the region. The sub-prime crisis similarly originated from imprudent lending practices. The low interest rate environment also accentuated the build up of the excesses and rising asset values. In Asia , domestic credit increased to unsustainable levels, reaching 180% of GDP during this period. In the United States , it had increased close to 240% in 2007. The excessive leveraging and increased risk taking reinforced the formation of asset bubbles. In both cases, there was also abundant liquidity. Both Asia and the United States experienced surges of capital inflows. This was reinforced by favourable sovereign ratings in Asia and the strong ratings for the securitized instruments in the US . The eruption of the crisis set off the reversal of these trends. There was also a failure to recognise that in a highly integrated international financial system, it meant that a crisis that originate in one part of the financial system not only would have an impact on other parts of the system but it could have far reaching implications on other jurisdictions.
Despite all that, foreign exchange market participants and central banks in 1974 found Herstatt risk to be an intractable problem. All that was left to banks was to manage it. And so it went for 20 years. Then, in the mid-1990s, Bill McDonough, president of the New York Fed, identified the continued existence of Herstatt risk as a challenge to be met. As chairman of the Committee on Payments and Settlement Systems of the G-10 Central Bank Governors, he spurred the central bank community to take a fresh look. This time, the combination of new financial analysis and the rapidly expanding availability of raw computing power made the difference. •  In what today still stands as a landmark in analysis of the connection between operational and financial risk, the 1996 Allsopp report demonstrated in a straightforward manner just how much financial risk existed in the bilateral settlement of gross principal amounts of foreign exchange – an analysis that provided the insight into how a settlement facility could reduce that risk, and into understanding how settlement management could improve in the interim. •  Raw computing power was essential for the design and risk management of any proposed new settlement facility. Through scenario analysis and stress testing, CLS’s founders could determine the necessary capital and liquidity needs, default handling procedures, and the general benefits of multilateral vs. bilateral netting. The inherently multicurrency nature of foreign exchange settlement of course enhanced the challenge.

We wish you another equally successful decade – and look forward to another decade of working successfully together. BIS central bankers’ speeches  3
Some investors have bucked this trend. Warren Buffett told Berkshire Hathaway investors in 1988 “our favourite holding period is forever”. But for an increasing fraction of the financial world, the favoured investment horizon seems to be whenever. A number of structural factors help account for these trends, some of them positive. Transactions costs in equity markets have fallen significantly. This has encouraged growth in a particular class of investor – high-frequency traders (HFTs). While HFTs are not new, their speed of execution has undergone a quantum leap. A decade ago, the execution interval for HFTs was seconds. Advances in technology mean today’s HFTs operate in milli- or microseconds. Tomorrow’s may operate in nano-seconds. HFTs operate in size as well at speed. HFT firms are believed to account for more than 70% of all trading volume in US equities, 40% of volumes in US futures and 20% of volumes in US options. In Europe, HFTs account for around 30–40% of volumes in equities and futures. These fractions have risen from single figures as recently as a few years ago. And they look set to continue to rise. Asian is not immune from these trends. HFT is believed to account for between 5 and 10% of Asian equity volumes. In China, HFT is still in its infancy. But market contacts suggest as much as 80–90% of trading on the Shanghai stock exchange may be done by day-traders, many small retail investors. Impatience is socially, as well as technologically, contagious.

As well as its own actual mandate of keeping prices stable, some people seem to be under the impression that it should be used to strengthen growth, lower unemployment, safeguard the financial system and guarantee citizens adequate interest rates”3. Yet, monetary policy can only buy time for structural reforms in the short run, while tensions are accumulating in the background. One major source of tensions refers to the wage policy. Chapter 2 of REO discusses in much detail the “European wage dynamics and labour market integration”. The main messages of this 2/5  BIS central bankers' speeches  part can be summarized as follows: a) in EU 15 wages are subdued because they respond very slowly to changes in unemployment and are closely related to inflation and inflation expectations, which are unusually low; b) in NMS wage growth responds very quickly to changes in unemployment, and inflation expectations play a lesser role; c.) average wage increases in NMS were much higher since 2012 than in EU-15; d.) about one quarter of wage growth in Europe can be explained by EU-wide and group-level factors; e.) there was a decrease in unemployment, but also an increase in involuntary part-time employment; f) migration plays a role in the faster increase in wages in the countries of origin. One hot debate topic in Europe these days –reflected in the report- is the flattening of the Philips curve.
In March 2006, the European Council called for the establishment of “one stop” arrangements in each Member which would allow the setting up of company in one week by end 2007. Today it takes on average 27 days to set-up a new business in the euro area compared to 5 days in the US. 13 Fourth, to fully exploit productivity potential, the labour and product market reforms just mentioned need to be accompanied by policies that help to diffuse innovation and technological change. This includes, inter alia, measures to support innovation by higher investment in research and development (R&D). In 2004, roughly 1.9% of euro area GDP was spent on R&D compared to 2.8% in the US. Europe has set itself the target of achieving a share of 3% of GDP by 2010. Analyses made by the European Commission 14 show that if the effects of the increased knowledge investment foreseen within the Lisbon strategy were added in, the increase in annual EU potential output growth could reach up to three quarters of a percentage point. Of course, these are just crude calculations, which can certainly be challenged, but they give a notion of how large the welfare-enhancing potential of implementing structural reforms is. Of crucial importance in this strategy are the efforts to improve the labour force’s level of education and expertise. The impact of education on growth may be related to innovation, as well as the adoption of new technologies.

The same applies to net foreign debt, where Iceland will be even more of a middle-of-theroad country when the dust has settled and the failed banks have been wound up, as can be seen from Graph 7. BIS Review 139/2010  7  When the economy has stabilised and sovereign debt concerns have subsided, what are the key economic challenges facing Iceland? At the most fundamental level, they could be captured in one sentence: create the conditions for robust growth and reintegrate Iceland into international capital markets. But there are many elements that must fall into place if this is to happen. The Central Bank has been predicting that recovery will take hold in the second half of this year, which means that recovery should have started by now. There are actually signs, but not hard data, to support this. But it is not a strong or a robust recovery. If it is to turn into a robust recovery, we need much more progress on internal private sector debt restructuring and we must increase business investment from its present historically low level. This, in turn, requires a lower level of uncertainty about future demand and businesses’ operating conditions, and more foreign direct investment would be very helpful as well. If successfully carried out, the removal of the comprehensive controls on capital outflows and the reintegration into international capital markets should also support growth going forward. The Central Bank has stated that there are three prerequisites for taking the next steps in lifting capital controls.
In Korea, Kakao Bank has in its first year of operations attracted more than 6 million users. 4/6  BIS central bankers' speeches  29. The success of our banking liberalisation to date gives us the confidence to manage the entry of digital banks in our next phase of liberalisation. In time, successful digital banks in Singapore can also complement the local banks in anchoring domestic financial stability. New Digital Bank Licences To Facilitate New Business Models Eligibility conditions MAS will therefore issue up to five new bank licences to digital players that can add value to the Singapore banking sector and the economy. This is in addition to any digital banks that the local banking groups may also establish. The local banks are already allowed to set up standalone digital banks under our internet-only bank framework. 30. 31. We welcome firms with innovative value propositions to apply for the new digital bank licences, even if they have not yet established a track record in banking. They may apply for a digital full bank licence or a digital wholesale bank licence, as follows. MAS will issue up to two digital full bank licences, to companies headquartered in Singapore and controlled by Singaporeans. Foreign companies are eligible for these full bank licences if they form a joint venture with a local company, and the joint venture meets our headquarter and control requirements. 32. 33. We are starting with two digital full bank licences, so as not to fragment Singapore’s small domestic retail banking market.

Government support measures to shield the economy from the impact of high energy prices should be temporary, targeted and tailored to preserving incentives to consume less energy. In particular, as the energy crisis becomes less acute, it is important to now start rolling these measures back promptly in line with the fall in energy prices and in a concerted manner. Any such measures falling short of these principles are likely to drive up medium-term inflationary pressures, which would call for a stronger monetary policy response. Moreover, in line with the EU's economic governance framework, fiscal policies should be oriented towards making our economy more productive and gradually bringing down high public debt. Policies to enhance the euro area's supply capacity, especially in the energy sector, can help reduce price pressures in the medium term. To that end, governments should swiftly implement their investment and structural reform plans under the Next Generation EU programme. The reform of the EU's economic governance framework should be concluded rapidly. Inflation According to Eurostat's flash estimate, which has been calculated using Eurostat estimates for Germany, inflation was 8.5 per cent in January. This would be 0.7 percentage points lower than the December figure, with the decline owing mainly to a renewed sharp drop in energy prices. Market-based indicators suggest that energy prices over the coming years will be significantly lower than expected at the time of our last meeting.
Moreover, some of these GDP losses are expected to persist. Evidence from past crises suggests that crisis-induced output losses are permanent, or at least persistent, in their impact on the level of output if not its growth rate. 3 If GDP losses are permanent, the present value cost of crisis will exceed significantly today’s cost. By way of illustration, Table 1 looks at the present value of output losses for the world and the UK assuming different fractions of the 2009 loss are permanent – 100%, 50% and 25%. It also assumes, somewhat arbitrarily, that future GDP is discounted at a rate of 5% per year and that trend GDP growth is 3%. 4 Present value losses are shown as a fraction of output in 2009. As Table 1 shows, these losses are multiples of the static costs, lying anywhere between one and five times annual GDP. Put in money terms, that is an output loss equivalent to between $ trillion and $ trillion for the world economy and between £ trillion and £ trillion for the UK. As Nobel-prize winning physicist Richard Feynman observed, to call these numbers “astronomical” would be to do astronomy a disservice: there are only hundreds of billions of stars in the galaxy. “Economical” might be a better description. It is clear that banks would not have deep enough pockets to foot this bill. Assuming that a crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $ trillion per year.

1 Draghi, M. Welcome address at the Eighth ECB Statistics Conference, Central Bank Statistics: moving beyond  the aggregates, Frankfurt am Main, 6 July 2016. www.ecb.europa.eu/press/key/date/2016/html/sp160706.en.html  3/3  Available  at  the  ECB  web  site:  BIS central bankers' speeches