samchain/econo-pairs-v1 huggingface dataset:
In an attempt to protect their own real income from the unavoidable impact of higher external prices, the longer that firms try to maintain real profit margins and employees try to maintain real wages at pre-energy price shock levels, the more likely it is that domestically-generated inflation will achieve its own self-sustaining momentum even as the external impulse to UK inflation recedes. Monetary policy cannot prevent the loss of real national income stemming from the deterioration of the terms of trade. That is a real shock, with real consequences that ultimately monetary policy cannot offset. Nor can or should monetary policy seek to influence the distributional impact of the terms of trade shock on specific sectors or regions. As a relatively blunt instrument, monetary policy is not well suited to such a task, which would any way extend beyond its established mandate. [8] What the Bank can do – and indeed must do, if it is to achieve its price stability mandate – is ensure that any self-sustaining momentum in inflation at rates above the 2% target is squeezed out of the system by constraining demand relative to supply as necessary. ‘Multiplicative effects’ and Says’ Law This naturally leads back to where I started: while pricing power in tight goods and labour markets can be analysed as a source of inflationary pressure distinct from energy price rises, these two factors can – and do – interact with one another.

Implicit in the concerns about second round effects discussed here is the fear that domestic actors will resist that switch in the composition of demand by seeking to maintain their income and spending levels at pre-shock levels, which is inconsistent with the necessary and inevitable adjustment to the real shock to the economy and can ultimately lead to inflation. 9. As discussed in footnote 8, the composition of demand across domestic and external sources is also important for adjustment to real exchange rate shocks. In this regard, the ability and willingness of domestic firms and households to substitute away from more expensive natural gas imports – both to other sources of energy, and also to non-energy goods and services – can influence the adjustment and its potential inflationary consequences. This was discussed in Box B of the MPC’s November 2022 Monetary Policy Report.
In the current crisis, monetary policy is said to have played a role in contributing to excessive risk-taking behavior in the period leading up to the crisis, but monetary policy is also powerful in handling the economic and financial downturns through aggressive actions on interest rate and the provision of liquidity. This shows that it is crucial to get the stance of monetary policy right early by formulating monetary policy in a forward-looking manner. This, of course, is easier said than done. And the last lesson is communication. One lesson we learnt clearly from the crisis is that policy actions alone cannot ensure a successful outcome without the support of an effective communication strategy. In this crisis, the Fed has demonstrated the importance of this to the highest level through its ability to articulate its understanding of the situations, to communicate the rationale for the use of unconventional measures, its approach to making the results of the stress-testing exercise public, as well as its ability to manage market expectations while maintaining policy credibility. All these have been instrumental to the success so far of the Fed’s policy response. It is, therefore, clear from the crisis that wellexecuted and credible communication can help anchor market expectations. Let me now turn to my second remark on strengthening the monetary policy framework. I agree much with what has been said about the need to improve bank regulation and supervision going forward, especially to reduce procyclicality in the financial system.

But for monetary policy, the framework can also be strengthened to increase its effectiveness in safeguarding price and financial stability. The first is that good macro-surveillance process is a must to help identify key risk that might be developing in the economy. This surveillance needs to cover both developments in the real economy and in the financial markets so that any potential risk to financial stability can be identified early. Second is the need for a disciplined decision-making process that takes into account information from the surveillance process in the deliberation of monetary policy. One key common weakness in the past has been the limited use of information on the financial side in the formulation of monetary policy. Third, in order to deal effectively with both price and financial stability, the thinking now is to focus monetary policy on its core function of maintaining price stability, while financial stability objective is best served by ensuring a robust and efficient financial system through strong bank regulation and effective supervision. Nonetheless, to the extent that developments in the financial sector may have systemic implications, monetary policy can be combined with macroprudential measures aimed at reducing risk to financial stability at the source. An example of this is excessive credit growth in a certain sector that can be discouraged by tightening up the relevant lending standards. A number of SEACEN economies have adopted this approach, especially for housing loans.
We are also seeing signs of spillovers to other parts of the economy, with recent survey data pointing to some moderation in the services sector. 1/5  BIS central bankers' speeches  Yet, consumption has held up fairly well: labour market conditions have continued to improve, encouraging consumers to remain confident and to continue to spend. The prolonged slowdown in economic activity has nevertheless been affecting price developments, which remain subdued. According to Eurostat’s flash estimate, inflation stood at 1.0% in November. Whether we look at surveys or market-based measures, inflation expectations are at or close to historical lows. What can the ECB do in a weaker economic environment to fulfil its price stability mandate? First of all, monetary policy can respond effectively even when growth is being dampened by external factors. And it can do so by ensuring favourable financing conditions for all sectors of the economy and providing visibility on those conditions into the future. Backed by a steady flow of credit on affordable terms, households and firms can consume and invest more. Such support for internal demand reinforces the services sector in particular, which is the most labour-intensive part of the economy. That helps to protect jobs and incomes and thereby sustains consumption – partly offsetting the external shock. We are seeing this mechanism in action today: the relative resilience of services so far is the key reason why employment has not been affected by the global manufacturing slowdown.

Christine Lagarde: Hearing of the Committee on Economic and Monetary Affairs of the European Parliament Introductory statement by Ms Christine Lagarde, President of the European Central Bank, at the ECON committee of the European Parliament, Brussels, 2 December 2019. * * * Madam Chair, Honourable members of the Economic and Monetary Affairs Committee, Ladies and gentlemen, I am very happy to be back before this Committee for my first regular hearing as ECB President. I want to express my personal and sincere gratitude to this house for the support I received during the appointment process. And I look forward to a constructive and positive relationship between our two institutions going forward. The connection between the ECB and the European Parliament is especially valuable today as a means to reinforce trust in European institutions. In the euro area, support for the single currency has grown steadily in recent years, rising from a low of 62% in 2013 during the crisis to an all-time high of 76% today. Trust in the ECB has grown in that time as well – but its recovery after the crisis has been less dynamic.1 My predecessors at the ECB were alert to this and already acted to address the challenge. The ECB’s accountability practices have evolved2, as has its communication strategy.
Our currency, the ringgit, has been subjected of market volatility throughout this episode of global economic uncertainty. While most emerging markets currencies depreciated following the reversal of capital flows, the extent of ringgit weakness has gone beyond fundamentals and rational thinking. While market liquidity remains sufficient, on certain days, FX spreads have widened to 100 pips in the interbank market, and led to spikes in the movements of the ringgit exchange rate. Market volatility has almost doubled from around 8% to 14–15%. I believe that the recent adverse market conditions with thin liquidity in the FX market have been exacerbated by irrational market behavior and risk aversion. In the current market environment, our own analysis has revealed that the higher interbank volume and the higher market volatility were due to this risk aversion. A small client’s order gets passed around among interbank players like a “hot potato”, and the exchange rates move each time it changes hand. These irrational behaviors have significant repercussions on the real sector of the economy. Banks, fearing rapid movement in the ringgit, quoted widen spreads to corporates and this gets amplified when corporates themselves get increasingly nervous and rush to fulfill their foreign currency requirements. As a result, trades in small volume can lead to a disproportionate impact on the exchange rate. This is in contrast to Malaysia’s strong economic fundamentals, steady and sustained growth, high level of international reserves, low unemployment and a resilient and diversified financial system, etc.

First, given the unpredictable and dynamic nature of the financial market, there is urgency for us to keep our fingers on the pulse of the market and have access to real time information. 2  BIS central bankers’ speeches  There is much scope for cooperation between the central bank and industry players in this area. In addition to being familiar and observance of the rules and regulations of the financial market, we expect market participants to know the details of their clients’ transactions to aid us in understanding the nature of the market conditions. Everyone has an important role to play in maintaining the stability of the market and remain vigilant on all financial market activities. This is necessary to prevent activities that could threaten financial stability and create unnecessary volatility, or incidents that could damage the integrity of our domestic financial market. Secondly, while I’m on the topic of enhancement of market stability and integrity, I should stress on the importance of upholding individual ethics and professional conduct. The market is made up of individuals including institutions. The glue that binds individuals and institutions that constitute the market is TRUST. A case in point, on rate rigging, several global banks paid hefty fines to regulatory authorities because of individuals rogue traders. Many dealers were convicted of wrong doings, and investors are still taking lawsuits against the banks. TRUST was violated. While no Malaysian dealers were caught red handed in market misconduct, we should not be complacent.
Had we not done this, constant nominal interest rates amid falling inflation rates would have led to higher real interest rates and undermined anaemic growth even more. This would have significantly increased the risk of deflation. This is just as harmful as accelerating inflation. As Walter Eucken said: “Deflation distorts the price framework just as much.”1 1/5  BIS central bankers' speeches  Thus, price stability for the ECB means that we have to protect European citizens not only from inflation rates that are too high, but also from a deflationary spiral. This is reflected in our quantitative definition of price stability: an inflation rate of below, but close to, 2% in the medium term. We therefore acted in order to abide by this symmetrical mandate on price stability. But we are aware that we cannot lower our interest rates to an unlimited extent.2 As from a certain level, it becomes more attractive to keep cash – despite the associated costs – than to pay negative interest rates. And even if this point has not yet been reached, we are bearing in mind that further rate cuts into negative territory may have non-linear effects. The reactions of people in extremis cannot be anticipated. But we can also influence market interest rates in other ways. Thus, for example, with our asset purchases we have pushed the yield curve down.

A little bit of stodginess? Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  Cumbria Chambers of Commerce, Kendal Friday 13 July 2018  1  All speeches are available online at www.bankofengland.co.uk/speeches  “In my view both as a citizen and as a policymaker, a little stodginess at the central bank is entirely 1  appropriate”  Alan Blinder’s 1999 advice to central bankers, quoted above, was not, I am pleased to say in these fitness conscious times, an injunction on the appropriate nutrition for monetary policy makers. Rather, it was advice on how to respond to uncertainty or, to be precise, the need for caution when faced with a particular type of uncertainty – uncertainty about the impact of monetary policy on the key variables in the economy it seeks to influence. But I would like today to look at the case for ‘stodginess’ when faced with uncertainty more generally about possible changes in how the economy works and the ‘model’ of the economy that policymakers necessarily have in their minds. Uncertainty, as I have noted before is the natural environment of monetary policy. There is a large academic literature on the optimal way for policy to deal with different types of uncertainty. But I would like to look at these issues first in the context of my time on the MPC and then in relation UK monetary policy going forward.
This has allowed U.S. businesses to restructure their balance sheets, manage their earnings per share through share buybacks financed with bargain-basement debt issuance, bolster stock prices through enhanced dividend payouts and position themselves for financing growth once they see the whites of the eyes of greater certainty about their economic future. By driving nominal interest rates to half-century lows, we have also reduced the hurdle rate by which future cash flows of publicly traded businesses are discounted. Thus, through financial engineering, we have helped bolster a roaring bull market for equities: The indexes for stocks have nearly tripled from the lows reached in March 2009. Alongside these signs of rebound have been some developments that give rise to caution. I have spoken of these in recent speeches, echoing concerns I have raised in FOMC discussions: •  The price-to-earnings (PE) ratio of stocks is among the highest decile of reported values since 1881. Bob Shiller’s inflation-adjusted PE ratio reached 26 this week as the Standard & Poor’s 500 hit yet another record high. For context, the measure hit 30 before Black Tuesday in 1929 and reached an all-time high of 44 before the dotcom implosion at the end of 1999. 1  •  Since bottoming out five years ago, the market capitalization of the U.S. stock market as a percentage of the country’s economic output has more than doubled to 145 percent – the highest reading since the record was set in March 2000.

As a general rule, then, the further into the future a commitment extends, the vaguer it tends to be. Along these lines, the FOMC periodically reiterates its commitment to do what it is legally mandated to do: pursue full employment, price stability and a stable financial system. But getting from there to an actual prescription for the funds rate isn’t straightforward. If it were, FOMC meetings wouldn’t take eight-plus hours of discussion and hundreds of pages of briefing materials. Delphic forward guidance is less binding than Odyssean guidance. Like the responses of the oracle of Apollo at Delphi, it is more obscure, more enigmatic. It amounts to saying, “Here’s what we think we are going to want to do if the economy evolves as we currently expect.” Delphic guidance clarifies your current thinking about future policy without making any promises – even contingent promises. Our current FOMC statement is chock-full of Delphic guidance.
At the same time, an increase in life expectancy for each cohort will reduce the annual pension. This motivates the individual to remain in employment and to ensure that the system is sustainable. The National Insurance Scheme’s expenditure is financed directly over the central government budget. Decisions about national insurance benefits have a substantial influence on future taxpayers. These costs are not transparent when the budget is decided. Developments since 1967 show that such a pay-as-you-go system is not robust. Benefits change over time and costs can easily be pushed into the future. The alternative is a system where pension expenditure is covered by accumulated capital, i.e. a funded system. In a funded system, a decision to increase pensions or reduce the age of retirement will require the allocation of capital today to cover future expenditure. Such a fund provides a measure of the cost of increasing pension expenditure. Our pension system is complicated. In addition to the National Insurance Scheme, many other operators, including the central government, have established additional pension schemes. There are different rules for coordination and entitlement. Any shift to a fund-based system for the National Insurance Scheme will probably require transitional rules for many years ahead. However, I believe that it will be possible to find solutions to these practical problems. Distributional and practical considerations imply that minimum benefits in the pension scheme cannot depend on earlier employment, but should apply to everyone.

An increase in unemployment that is due to a higher rate of increase in labour costs than implied by productivity growth cannot be offset by low interest rates or higher public spending and tax cuts, but requires changes in the functioning of the labour market. There is an important interaction between monetary policy and fiscal policy. According to the new guidelines for fiscal policy, petroleum revenues are to be phased in approximately in pace with the expected real return on the Government Petroleum Fund. This guideline implies that fiscal policy will contribute to stimulating aggregate demand in the Norwegian economy every year for many years ahead. The guideline also implies that the use of petroleum revenues will increase as long as the Petroleum Fund is expanding. Variations in oil prices are accompanied by considerable fluctuations in government petroleum revenues from one year to the next. It is important to prevent these fluctuations from spilling over to the mainland economy. Public expenditure and taxes that vary in relation to oil prices would result in an unstable economic environment. Financial markets would be marked by uncertainty and  4  BIS Review 11/2002  turbulence, with an increase in the risk premium on Norwegian securities. This would have resulted in higher and more variable interest rates. The risk of financial crises in Norway would also have increased because the cyclical fluctuations in the Norwegian economy would have been more pronounced. It is therefore an advantage that fiscal policy is now predictable and anchored in a longterm strategy.
We had to expect that this increase would lead to a deterioration in the competitive position of Norwegian manufacturing, either through higher wages or through an appreciation of the krone exchange rate, and with Norway’s relatively higher wage growth, competitiveness has been weakened by approximately 15 per cent since the mid-1990s. The krone exchange rate has been influenced by high oil and gas prices and prices for other Norwegian export goods. Monetary policy has also influenced the path for Norway’s relative costs, but the nominal value of the krone is about the same as ten years ago. Strong growth in public expenditure and expectations of moderately higher growth in the use of petroleum revenues now seem to have been factored into the cost level. Even at the beginning of the oil age in Norway in the early 1970s, the relationship between the use of petroleum revenues and changes in industry structure was raised as an issue. Manufacturing industry was scaled back in waves in the course of this period. The last wave occurred around the turn of the millennium, but a substantial decline also occurred in the periods 1977 to 1984 and 1987 to 1992. Prior to these periods, the manufacturing sector’s competitiveness deteriorated. Today, about 55, 000 fewer persons are employed in manufacturing than was the case in 1998. The share of our imports that can be covered by current petroleum revenues and some of the Petroleum Fund will gradually diminish. Competitiveness must therefore be improved.

Like China, income disparity is a major problem. Reforms will be uneven and politically complex. The Indian system, with its decentralisation of power, makes change more difficult. Navigating the bureaucracy and its regulations requires connections, skill and lots of patience. However, while the pace may fluctuate, reforms are irreversible. Whichever party is in power will have to deliver the economic goods. This, together with the desire not to be left behind by China, will ensure that India stays on the path of reform. 22. India has many strengths, not least of which is its deep source of human capital, including a large pool of well-educated English-speaking professionals and workers. India has a young population, much younger than Japan's and China's. 55 percent of Indians are under 25 years old and 40 percent under 15. 23. India has carved a niche for itself as the world's back office and a global software centre. India is also working hard to change its investment outlook. In 2004, Foreign Direct Investment (FDI) into India was $ billion, less than 10 percent of China's $ billion. Under Prime Minister Manmohan Singh, fiscal consolidation has shown progress. Customs duties have been slashed. Another significant initiative is the development of Special Economic Zones, where superior infrastructure, flexible investment laws and special incentives are designed to draw in foreign investments. 24. There is strong competition among Indian states and cities for investments and to outperform each other. Recently, the Chief Minister of West Bengal called on me.