samchain/econo-pairs-v1 huggingface dataset:
So it is important to ensure the presence of suitable mechanisms that facilitate the necessary co-ordination. In the arrangements recently proposed by the new government in the United Kingdom that is to be achieved by putting both the decision makers – the Monetary Policy Committee and the Financial Policy Committee – in the same institution and ensuring that they have a number of members in common. 6. Concluding remarks  To conclude, we return to the elements of the pre-crisis policy consensus outlined in the introduction and ask what remains or how it needs to be modified. 1. The role of fiscal policy. Fiscal policy is the topic of the next session. But we should at least note that the collapse of private demand after the demise of Lehman Brothers prompted not only the operation of the automatic stabilisers but also additional discretionary fiscal policy measures in the most affected economies, with the total fiscal impulse coming in at around 4 per cent of GDP. But the effectiveness of those expansionary fiscal policies in stimulating demand remains a matter of debate, both in policy making circles and academia. On the one hand, there are those who believe the fiscal multipliers are negligible, either because of Ricardian Equivalence or because of crowding out through the impact of high public debt and deficits on long-term interest rates.

a: The coefficient δ in the regression Δρt = α + βt + γ1Δρt-1 + γ2Δρt-2 + δρt-1 + εt, where ρt is the deviation of the actual price level from a price path implied by the target measure of inflation. b: 90% critical level = -3.14 (-3.16 for euro-area regression). c: The coefficient δ in a pooled regression (omitting the euro area), where δ is constrained to take the same value in all jurisdictions. d: Adjusted t-statistic, following Levin, Lin and Chu (2002).
In Sweden, we have STIBOR (Stockholm Interbank Offered Rate) for contracts in Swedish kronor. STIBOR is used, among other things, to price variable-rate loans aimed at companies and the public sector, when pricing various derivatives in the financial market and to determine the interest rate for variable-coupon bonds. In Sweden, it is rare for households to encounter interest rates directly linked to STIBOR. However, households and consumers are still affected because the reference rates affect pricing in other parts of the system before the funding reaches households. So reference rates are very much an important component of the financial system that affects us all. Those of you listening today have no doubt come across STIBOR in your loans. You may also have issued securities where the coupon follows STIBOR and you may be handling your interest rate risk with derivative instruments linked to STIBOR. Perhaps you also have leasing agreements connected to STIBOR. According to STIBOR’s administrator, the Swedish Financial Benchmark Facility (SFBF), STIBOR is used in financial instruments and contracts to a nominal value of about eight times Sweden's annual gross domestic product. Interbank rates resting on increasingly weak foundations But – and now I come to the answer to the question why we have developed a new reference rate – the foundation on which the interbank rates rest has gradually been eroded. LIBOR, STIBOR and the other interbank rates are determined daily on the basis of reporting from a panel of banks.

Why “rebalancing?” Because we were steadily raising interest rates toward normal territory amid global and domestic economic recovery. Well, that was one year ago. One year can be a long time, especially for financial markets. And, indeed, things have changed a great deal since then. We had the flood; and the euro crisis. Interest rate hiking was put on hold and rebalancing postponed amid post-flood recovery and reconstruction and especially amid global uncertainty due to the euro. Now we project global economic recovery to be weaker than believed since the financial crisis in 2008. So if last year was the “year of rebalancing” what is this year? For monetary policy, this year is a year of risk and reassessment. By risk I refer to the possibility that the euro crisis may spread to Asia and Thailand. And by reassessment, I refer to how monetary policy must reconsider rebalancing and carefully re-examine all the options, given how the balance of risks has significantly shifted toward growth and away from inflation. We are therefore faced with three key questions. First, how will the euro crisis play out? Second, can Thailand grow through the euro crisis? And third, what should monetary policy do? Let me now turn to the first question. How will the euro crisis play out? In my view, the short answer is this. The euro zone will mostly likely remain intact and avoid a liquidity seizure similar to the one seen during the Lehman crisis. However, the euro zone will face a slow and difficult recovery.
Almost half the increase is attributable to a lower interest rate level. Debt burdens are still high, but the stabilisation of employment at a relatively low level has contributed to reducing uncertainty. The interest rate level remains low. In addition, house prices have increased. The saving ratio is therefore expected to fall, and growth in private consumption is projected at 5 per cent in 2010. Reports from Norges Bank’s regional network in February suggested that output growth will remain relatively weak in the coming quarters, but with wide variations across industries. Suppliers to the offshore sector expect activity to continue to shrink. The building and construction industry also expects a further fall in output, while reports from household suppliers and exporters suggest and increase in output ahead. There are still few regional network enterprises reporting that capacity constraints will make it difficult to accommodate higher demand. Since autumn 2009, it seems that capacity utilisation has increase somewhat in coastal regions from the southwest to the north. Many of the industries that are faring well are located in these regions, such as fish farming, fisheries, parts of the metal industry and suppliers of operating services to the oil sector. Employment stopped falling in the fourth quarter of 2009. Total mainland employment had then declined by about 30 000 since autumn 2008. The fall in employment has been smaller than the decline in output might imply. Productivity has fallen markedly. During the downturn, the number of hours worked has decreased somewhat more than the number employed.

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Within this view, some members put more emphasis on the continuing shortfall in the level of GDP relative to pre-Covid, while others emphasised the continuing direction of travel towards closing that gap and the evidence of cost pressures accompanying the closing. But all of this group were of the view that the stimulus to monetary policy enacted in response to Covid would need to start to unwind at some point, that unwind should be enacted by an increase in Bank Rate, and if appropriate would not need to wait for the end of the current asset purchase programme. The other view places more weight on current evidence of cost and price increases and accompanying signs of labour market and capacity pressures, leading to more persistent excess demand and higher inflation. Moreover, a policy change now would contribute to ensuring medium-term inflation expectations remain well anchored. From this, I would draw out a number of important points. The great strength of the MPC process is that nine reasonable and I would say well informed people can differ on these interpretations, and we do so transparently. But, all of us believe that there will need to be some modest tightening of policy to be consistent with meeting the inflation target sustainably over the medium-term. Recent evidence appears to have strengthened that case, but there remain substantial uncertainties and we are monitoring the situation closely. Let me finish with a thought which builds on the whole area of supply shocks.

Pulling this together, the recovery has slowed and the economy has been buffeted by additional shocks. The switch of demand from goods to services, as Covid has faded in terms of its economic impact, has not taken place to date on the scale expected. Meanwhile, supply bottlenecks and labour shortages have weighed on output, and are continuing. Indeed the number of high profile supply bottlenecks appears to be increasing. I must say that when I heard that we were suffering a shortage of wind to generate power, I was tempted to ask, “and when are the locusts due to arrive”. The hard yards ‐ speech by Andrew Bailey | Bank of England  Page 2  A number of these supply bottlenecks are not obviously a product of Covid, though others are. It is also possible that the economic fragility created by Covid has amplified the impact of other shocks – either that or the gods really are against us. I think it is more likely Covid amplifying at work. I want now to turn to the labour market, because here we appear to have a big puzzle. Let’s start with the very good news. So far we have not seen a major upturn in unemployment or substantial corporate distress, despite one of the largest economic downturns in history. That is a notable success for economic policy all round. Put simply, if the authorities have the tools and the credibility, they can do a lot to help.
These two examples are of course extremely simplistic, and are not realistic parameterisations of the Bank’s actual RSS. In broad terms, the elasticity of the Bank’s RSS is pinned down by three broad considerations. First, the Bank sees merit in allocating some funds regularly against wider collateral, to ensure counterparties remain familiar with the auction structure and continue to participate. Second, the Bank should not undermine the incentives to manage liquidity prudently. And third, the auctions should permit an increased allocation against wider collateral to the system in the face of adverse liquidity shocks and the associated heightened demand for liquidity. While the principles underlying the Bank’s RSS are clear, the precise configuration of the RSS is not revealed to the market, so reducing the scope for firms to game the Bank, and encouraging them to bid according to need. The Bank’s supply curve should be continuous but otherwise need not be linear. In particular the Bank can use the results from each operation to determine the degree of stress in the market and hence adjust the scale of the operations accordingly. Equilibrium The equilibrium point, which pins down the clearing spreads and the share of funds allocated to the two collateral sets, is determined by the intersection of the observed demand curve, and the Bank’s RSS. Chart 7 illustrates that using our hypothetical auction bids from Table 1 above, and three hypothetical linear RSS schedules. In case of intersections such as those given by curves A and B, a unique equilibrium is well defined.

The fruits of that labour were revealed in the summer of 2010, when the Bank replaced the extended LTRs with its new permanent Indexed Long-Term Repo (ILTR) operations. In the ILTR auctions, counterparties can submit bids against narrow collateral, wider collateral or both. The Bank then allocates a proportion of the funds on offer to the bids against wider collateral, where that proportion depends on the spreads offered. These new auctions solve the problems of the old LTRs. For example, expressing the bids as spreads to Bank Rate (with a minimum spread of zero) eliminates the interest rate risk arising from unexpected movements in the spread of market rates to Bank Rate. Moreover, the price of liquidity against wider collateral is determined within the auction – as the market becomes more stressed, counterparties are willing to pay more to borrow against wider collateral. So the Bank no longer has to make a judgment about the appropriate spread to charge counterparties. The most innovative aspect of ILTRs is that is that, as the degree of market stress increases (as the clearing spread on wider collateral rises relative to that on narrow collateral) the Bank automatically, within the auction, lends a greater proportion against wider collateral. And it gets a signal about the need to expand the overall size or frequency of the operations in future. As far as we know, the new format represents a global first for a public auction in any field.
When thinking about the major challenges for maintaining financial stability I find it useful to first look at the notion of how the “real world” deviates from the “frictionless” ideal world of academic textbooks. In order to organise my reasoning, this can serve as a useful starting point, since in the ideal world there is no such thing as financial instability. Indeed, most of the concerns over financial stability actually stem from the fact that our “real world” financial markets have frictions or - in other words market imperfections. A fundamental friction is that financial market participants very often have imperfect information. When information is not perfect - or when markets are not fully transparent - investors’ decisions may be constantly subject to reassessment, which can lead to inevitable volatility in market prices. This does not necessarily mean that there is an inherent threat to financial stability. On the contrary, the very existence of some level of volatility indicates that markets are serving the function they are supposed to deliver - that they are an efficient exchange mechanism among economic agents. Nevertheless, some recent episodes of extreme volatility have drawn our attention to more accurately delineating the boundary between “normal” and what could be called “harmful” volatility. The second source of friction is that we also fall short of the ideal of having complete markets.

This is partly because these can cause instability in both the real economy and prices when the bubble bursts and partly because the stability of the banking system could be threatened. Measures to avoid financial imbalances being built up are thus motivated on the basis of both of the Riksbank's objectives; to maintain price stability and to promote a safe and efficient payment system. However, the question is how effective the interest rate is as a weapon – perhaps other means can be utilised. Examples of such measures are monitoring the financial institutions and making capital adequacy requirements of them. The analyses made by the Riksbank in its Financial Stability Report are also aimed at drawing the attention of the banks and other authorities to any problems and they thus play a role in this context. BIS Review 39/2001  3  How great are the problems created by the imbalances in the USA? Is there a risk that the imbalances in the American economy are so great that the process of adaptation back towards a balance will dramatically intensify and prolong the economic slowdown? It can be noted that none of the ten major economic analysts of the American economy assesses that the USA will suffer a recession during the next few years. Firstly, it is probable that the growth potential that can be created by developments in technology is far from exhausted. There should thus be good reason for at least some of the optimism that has comprised a basis for earlier developments.
Over the last two decades, China has grown into one of the two largest economies in the world. At the same time, authorities are constantly announcing new steps to increase the renminbi (RMB) convertibility and develop its use in international transactions. It is therefore natural to wonder whether the RMB will emerge as a major international currency in the foreseeable future. In line with my introductory remarks, I will refrain from any geopolitical speculation on this question and present a few technical – and personal – remarks on the nature of a global currency. What does it take to become a reserve currency? It is generally assumed that this status brings important privileges, some of them “exorbitant”. It is also forgotten that it comes with significant obligations. First, being a reserve asset means that the currency enjoys full and unconditional capital account convertibility towards both residents and non-residents. The economy is therefore fully integrated with global capital markets and fully exposed to external financial shocks. This creates a very demanding environment. Convertibility essentially means that you accept the judgment of “foreigners” as to the true value and purchasing power of your domestic currency. Although it is not often perceived as such, it entails some abandonment of sovereignty, through the loss of some independence in monetary policy. This is the famous “Mundell trilemma”: no country can simultaneously have a fixed exchange rate, full capital  2  BIS central bankers’ speeches  convertibility and monetary policy independence. Indeed, all reserve currencies today have fully flexible exchange rates.

This may be, for the future, an interesting precedent: a new global currency can emerge without destabilizing the system. It is also worth noticing that the euro crisis had no major effect on its international role. In particular, the share of foreign reserves invested in Euro securities has barely moved. And, when the Swiss authorities decided to peg their currency, they chose the euro as an anchor. Does the euro have a “sphere of influence”? As you know, we have taken a very neutral stance on this issue and neither encouraged or discouraged the use of the euro as a reserve currency. In fact, the euro is increasingly used in international transactions and accepted for payments (including retail ones) in many countries – as European tourists can experience every day. Recently, the Eurozone seems to exert a stronger influence on global monetary conditions. For the first time in many decades, long-term rates in Europe have significantly decoupled from those of the US. Also, there is some evidence of “reverse causality” with Euro long term rates increasingly impacting US rates, creating new channels for monetary spillovers and feedbacks. However, the euro is not yet widely used as a unit of account: most global transactions – especially in commodities – are denominated in dollar. A majority of new securities issuances are also denominated in dollars. New global currencies? As the geography of the world economy changes, so will the shape of the international monetary system.
Macroeconomic developments and main assumptions  Now, I will talk about the macroeconomic outlook and our assumptions on which our forecasts are based. First, I will summarize the recent inflation developments, and then continue with the domestic and foreign demand outlook upon which we based our projections. In the fourth quarter of 2015, consumer price inflation (CPI) increased by about 0.86 points quarter-on-quarter to 8.81 percent, overshooting both the projections of the October Inflation Report and the uncertainty band around the year-end inflation target (Chart 11). Unprocessed food prices were the main drivers of this higher-than-forecasted rise in annual inflation. In fact, inflation excluding unprocessed food and tobacco was close to the October Inflation Report forecast in this period (Chart 12). The lagged effects of the Turkish lira depreciation were particularly evident through the core goods channel. Yet, the continued fall of import prices in the fourth quarter limited the rise in CPI inflation. Chart 11. October Inflation Forecasts and Realizations (Percent)  Chart 12. October Inflation Forecasts and Realizations Excluding Unprocessed Food and Tobacco (Percent)  * Shaded region indicates the 70 percent confidence interval for the forecast. Source: TURKSTAT, CBRT. In the fourth quarter, despite the decline in USD-denominated import prices, cost pressures on inflation continued due to food prices and exchange rate developments. We see that these rising cost factors limit the improvement of the underlying trend of core inflation BIS central bankers’ speeches  5  (Chart 13).

In order to reduce the intermediation costs of the banking system and provide additional support to core liabilities, we raised the remuneration rates on TL required reserves by 50 basis points each month in September, October and December 2015. Additionally, we made some adjustments to the coverage of reserve requirements on 9 January 2016. Accordingly, some funds at participation and investment banks were made subject to reserve requirements and the coverage of non-core liabilities was expanded. BIS central bankers’ speeches  3  Chart 7. Maturities of Non-Deposit Liabilities (Percent)  Chart 8. ROM Reserves, FX Deposit Facility and External FX Liabilities of the Banking Sector Due in 1 Year (Billion USD)  Source: CBRT. Source: CBRT. In the road map released in August, we also included some measures to enhance the flexibility of the foreign exchange liquidity management. To this end, we hiked the transaction limits for banks at the CBRT Foreign Exchange and Banknotes Markets on 1 September 2015. Consequently, the sum of FX deposit limits allocated to banks and gold and foreign exchange assets held at the CBRT under the reserve option mechanism (ROM) reached a level that is considerably above the external debt payments of banks which are due within one year (Chart 8). Moreover, in the “Monetary and Exchange Rate Policy for 2016”, we announced further steps to strengthen the stabilizing feature of the ROM. All these measures taken in line with the road map have increased Turkey’s resilience against global volatility.