samchain/econo-pairs-v1 huggingface dataset:
This means that across a broad range of scenarios, our large-scale asset purchase program is likely to result in a lower federal debt-to-GDP ratio. To sum up, the better choice is for the Fed to pursue the policy that best achieves its mandated objectives and puts the U.S. government in a better fiscal position. This dominates a policy of fewer purchases simply so we can avoid potentially having to explain why our remittances may have fallen to zero for a short period. Issues associated with the normalization of monetary policy Finally, I’d like to talk about some of the other issues associated with the normalization of monetary policy. In general, I think it is premature to spend much time focusing on exit when we have not yet secured a sustainable economic recovery. That’s putting the cart before the horse in my opinion. That said, we nevertheless do need to understand the issues surrounding exit so that we can design the best monetary policy regime to achieve our objectives. On this topic, let me ease three concerns I hear frequently expressed. The first is that the large amount of excess reserves in the banking system will be “dry tinder” and fuel a rise in inflation. As I have mentioned repeatedly, the ability of the Federal Reserve to pay interest on excess reserves ensures that we can control the credit creation process and prevent an upsurge in inflation.

First, consistent with the September statement, the FOMC began a new purchase program of $ billion long-dated Treasuries per month. Second, the FOMC shifted to economic thresholds from calendar-based rate guidance. The FOMC committed to keep the federal funds rate at its current level of zero to 25 basis points at least as long as unemployment remains above 6.5 percent, projected inflation on a one to two year horizon is below 2.5 percent and inflation expectations stay well anchored. Both elements of the policy stance were reaffirmed at last week’s FOMC meeting. So why did we make these changes? The additional asset purchases provide further monetary stimulus. This is appropriate given that we were falling short of our objectives.6 Moving to an outcome-based purchase program also has other advantages. In particular, expectations of the ultimate amount of purchases should change as the economic outlook evolves. This acts as an automatic stabilizing mechanism. In particular, the FOMC’s statement that purchases will continue until the labor market outlook improves substantially provides additional support for the recovery by reducing downside tail risk. The shift to rate guidance based on economic thresholds was not intended to provide additional accommodation at the time it was implemented.7 But, the adoption of thresholds does support the recovery by changing the risk profile in a different way. The thresholds  4  In addition to reinvestment of maturing MBS.
The crisis is also expected to have lasting effects on our economy, as both the level and the growth rate of potential output are most likely reduced for a longer time. Turning to price developments in the euro area, according to Eurostat’s flash estimate, annual inflation increased to 1.5% in March, from 0.9% in February. This was higher than expected. While this does not change our assessment, it is important to understand whether the surge in inflation in March is temporary or more lasting in nature. This is difficult to assess without a breakdown of developments in the overall HICP, which will only become available tomorrow (16 April). However, it seems reasonable to consider energy and food prices as the main drivers behind the higher than expected inflation outcome in March. Looking ahead, we expect inflation in the euro area to remain moderate over the policyrelevant horizon. The outcome of our monetary analysis confirms the assessment of low inflationary pressures over the medium term, with money and credit growth remaining weak. At the same time, we need to monitor price developments in the more dynamic regions of the world very closely, as well as the evolution of commodity prices and their potential impact on global inflation. Notably, a multi-speed recovery of the world economy, with some regions growing fast, while the recovery in others remains rather slow, has the potential to exert upward pressure on prices.

We may already have entered into the next phase of the crisis: a sovereign debt crisis following on the financial and economic crisis. Fiscal policy challenges Most governments in the advanced countries will exit from the recession with the highest deficit and debt-to-GDP ratios recorded in times of peace. 2  BIS Review 51/2010  As can bee seen in the chart, the general government deficit in the euro area is expected, according to the latest projections by the European Commission, to exceed 6.0% of GDP in 2009, 2010 and 2011. In Japan, the government deficit-to-GDP ratio is foreseen to reach around 9.0% of GDP in these years, whereas the UK and US government deficits are expected to be in excess of 10.0% of GDP in the period 2009–11. These high government deficits are reflected in mounting government debt, which will reach 88% of GDP in 2011 in both the euro area and the United Kingdom, 100% of GDP in the United States and 200% of GDP in Japan. These developments are the consequence of sizeable fiscal stimulus measures and of interventions in support of financial institutions in many advanced countries, but also of the sharp contraction in economic activity. In the euro area, adverse fiscal developments are a cause of particular concern in several countries, generally those that did not exploit more buoyant economic times to firmly consolidate their public finances. In the United States, too, some States (e.g.
Making good decisions in the face of these changes requires a higher level of financial and economic literacy than our schools typically equip people with. Third, in a world where the returns to quality education have gone up substantially (and the penalty for inadequate skills also) we have not done as well as we could in ensuring that Americans have the opportunity to take advantage of the best education this country offers, opportunity that is based on talent, not on the economic fortune of one’s parents. And finally, the prospect for building a political base for confronting our fiscal challenges requires that Americans expect more from their politicians, and raising the overall quality of education is probably an important part of getting better policy results in a democracy. Let me end by noting that by many measures the immediate economic landscape looks reasonably favorable. The U.S. expansion has proven quite resilient. We enter the new year with what appears to be a pretty solid underlying pace of growth. Core inflation is moderate, and various measures of inflation expectations suggest confidence in the outlook for price stability. Estimates of structural productivity growth remains high, although there has been some moderation recently. The pace of global growth has moderated a bit, but most forecasts anticipate a quite strong and broad-based expansion. The IMF’s projection is just over four percent for real global GDP growth.

In the financial markets, this broadly positive outlook has been accompanied by a dramatic reduction in risk premia, leaving the price of insurance unusually low against a less favorable or more volatile environment. Whether this confidence is justified and whether the U.S. economy does as well in the future as it did over the past decade or so, will depend critically on how successful we are in meeting these challenges in the areas of fiscal sustainability, and over the longer terms in trade policy and education. BIS Review 4/2005  3
It is, however, my firm opinion that confidence is being significantly undermined by at least two sources of uncertainty. One is domestic. It arises from the fiscal and regulatory authorities. Congress and the president must put together a program that will encourage growth in final demand as soon as possible by incentivizing private businesses to do what they do best to make growth in final demand possible: Expand investment, hire workers and go about the business of lifting the income and net worth of the American people. Yet, they must do so without running afoul of the need to reverse the downward spiral of the nation’s finances. To this end, I am encouraged that the president and the Congress are going at it hammer and tong, searching to find the right balance between goosing up the economy short term and reining in the longterm fiscal imbalances that are imperiling our nation’s future. The second source of uncertainty has largely emanated from the European debt crisis, which intensified in the spring of 2010. At that time, risk spreads jumped, and both securities prices and confidence retreated. This helped derail the momentum that the economy had built up in late 2009 and early 2010. The sovereign debt crisis has reintensified, as you are all aware, and risk premiums in bond and stock markets are rising once again. Another global factor that undermined the pace of recovery this year, of course, was the disruptive earthquake in Japan and the economic aftershock from this tragedy.

The point is that while I feel the most important role for a central banker is to maintain price stability – and I am always on watch, hawk-like, on the inflationary front – I share with equal intensity the concern of my FOMC colleagues about the employment picture and the overall fragility of our economy. I am keen on finding ways to close the income and output gaps depicted in these two slides and restore economic momentum. I find the last employment report and the recent Federal Reserve Bank surveys of activity, including the Dallas Fed’s, to be discouraging in this regard. When people are frightened, they understandably look for a “fix.” Yet, my colleagues and I are professionally beholden to beware of short-term fixes that might contradict, or place in jeopardy, the long-term duty and credibility of the central bank. I am wary of adopting any policy that might have the unintended consequence of becoming a veterinary fix rather than a more salutary repairing of the ability to propagate jobs. It is no secret that I thought the second round of quantitative easing (QE2) ran that risk. I could not support it when it was proposed because I saw no analytically sound justification that its purported benefits would outweigh its likely costs.
In that case, the country is poorly poised to cope with an end to easy money. The economic literature includes many studies that look at the relationship between income from natural resources and economic growth. An article by Jeffrey Sachs and Andrew Warren entitled “The curse of natural resources”2 sets the basic tone: Countries with large income from natural resources  1  Hermod Skånland, ”Norge og oljen – gamle eller nye utfordringer”. (Norwegian only). Lecture, 2 November 1988. 2  Jeffrey D. Sachs and Andrew M. Warner, The Curse of Natural Resources. European Economic Review 45 (2001), pages 827-838. 1/8  have generally recorded weaker economic growth than comparable countries. Professor Thorvaldur Gylfason illustrates this relationship for a large selection of countries in an article published last year.3 Both Gylfason and other authors4 in this field point to Norway as an exception to this general rule. Norway’s management of its petroleum revenues is often referred to as an example of successful organisation. 5  The construction of the Petroleum Fund In 1990, Norway established a transparent system for managing government petroleum revenues. All the revenues are transferred directly into a foreign currency fund, the Petroleum Fund. The Storting (Norwegian parliament) must adopt a resolution on any use of the capital in the Fund. Spending will be prioritised in the same way as for other government spending. There is no hidden use of revenues, or any use for special purposes. The Fund is strictly and effectively “out of bounds” to special interests.

I quote: “A transfer of production and employment between firms and industries may occur through higher domestic cost pressures” … and further … “How strong the pressures will be depends in particular on how strongly Norwegian business and industry is involved in petroleum activities and the scale of revenues that are used domestically”. The report underlines the responsibility that economic policy would have for developments. Fourteen years later, in 1988, former central bank governor Hermod Skånland summarised the experience gained up to that point in time.1 He was pessimistic. We had spent a large share of the cash flow from the petroleum sector on costly counter-cyclical policies and a rapid expansion of welfare schemes. Internationally exposed industries were scaled back, and it seemed that the economy was unstable. Inflation had taken root. Skånland concluded the lecture as follows: “We will be facing greater challenges with regard to demand management than countries with a broader industry base. It still remains to be seen whether we are more capable of addressing these challenges.”  Experience of other countries The experience of other countries that had received large, unexpected income from natural resources was not encouraging. The classic example is Spain’s substantial revenues from the colonisation of America in the 1600s. The historian David Landes summarised the Spanish experience as follows: Landes stated that easy money is bad for a country. It is very tempting to live comfortably on this income and be less concerned about safeguarding other revenue sources.
7  NORGES BANK  Chart 7 Activity picked up faster than expected  Number of employed excluding furloughed. In thousands 2950  2950  2900  2900  2850  2850  2800  2800  2750  2750  2700  2700  2650  2650  2600  2015  2016  2017  2018  2019  2020  2021  2022  2023  2024  Projections May 2020 Projections December 2021  ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  2600  Sources: Statistics Norway and Norges Bank  INFLATION IS RISING Two years after the outbreak of the pandemic, we can see that activity in the Norwegian economy has recovered firmly. The same can be said for many of our trading partner countries. But something might be changing. Following many years of low inflation, we are again seeing high inflation figures both in Norway and among our trading partners (Chart 8). A key driver of domestic inflation has been unusually high electricity prices through winter, which have resulted in high electricity bills for both households and firms. Much of the increase is likely to be temporary, and electricity prices are expected to come down in spring. But the winter’s electricity prices may serve as an early warning. The green transition probably means that we will be seeing higher and more volatile energy prices than we have been used to. Chart 8 High inflation in many countries  Consumer prices. Twelve-month change.

At roughly the same time, starting in 2011, we’ve seen a substantial loosening in nonmortgage lending standards by banks, an important sign of normalization in credit markets, as Chart 12 (Standards have loosened since 2011 on non-mortgage products) suggests. Perhaps not surprisingly, mortgage standards have only in recent quarters begun very slowly to reverse the significant tightening that followed the housing bust; see Chart 13 (Banks and Lenders Imposed Tighter Mortgage Lending Standards, 2nd half). Broad increases in wealth, continued recovery in the overall economy with higher levels of employment and income, a relaxation of credit standards, and historically low interest rates have led to improvements in delinquency rates and increases in both demand and supply for borrowing by U.S. households. In 2013, we see the consequent increase in household debt. In the last quarter of 2013, aggregate consumer debt increased by $ billion, the largest quarter-to-quarter increase since 2007. More importantly, as shown in Chart 14 (Total Debt Balance and Its Composition, in 2013 total household debt rose $ billion, marking the first four-quarter increase in outstanding debt since 2008. This is at most the beginning of a turnaround, of course: for example, once we adjust for inflation, debt per capita has just barely stopped falling, as Chart 15 (Real Household Liabilities Per Capita) suggests. BIS central bankers’ speeches  5  Further analysis based on our Consumer Credit Panel shows that the growth rates in auto and student loan borrowing have been positive for some time now.
A large part of the collateral the banks pledge for these loans will probably be comprised of covered mortgage bonds. The measures should therefore also have a positive effect on the functioning of the mortgage market. Together with the measures taken by other central banks, this should lead to better liquidity in the financial markets globally. A further measure is that the Riksbank as recently as today decided to establish a loan facility in Swedish krona to increase access to loans of longer duration. There have thus been disruptions in the financial markets, but the Riksbank, other government agencies and central banks have taken action to improve the functioning of the markets. We will of course continue to follow developments very closely. We are constantly updating our analyses and we are prepared to take action if necessary. In addition, as I have already mentioned, we have close contacts with the banks, market participants, other government agencies and our central bank colleagues in other countries. Monetary policy When the Executive Board met for our most recent monetary policy meeting on 3 September, the decision was to raise the repo rate by 0.25 percentage points to 4.75 per cent. However, the forecast for how the repo rate would develop in future was lowered in relation to the interest rate path that had been presented in July. The July forecasts contained a fairly high probability for a further two raises during the autumn.

The financial crisis has followed a familiar pattern Our actions during a financial crisis are very important, but the main task in our work on financial stability must be to prevent crises. History has shown that financial crises arise when financial imbalances have built up over a long period. Our most important task is therefore to contain the build-up of imbalances and secure a robust financial system. No two financial crises are alike. However, similar features can often be identified in the runup to the crises. This slide illustrates three features. These elements were also prominent in the unfolding of the most recent global financial crisis.   The first feature is often a sharp and persistent rise in property and other asset prices.   The second, strong debt growth, is closely linked to the first. Rising debt and increasing property prices is a mutually reinforcing dynamic. Higher property prices lead to higher collateral values for loans. With easier access to credit, purchasing power increases.   Debt growth exceeds growth in bank deposits and banks must increasingly resort to market-based funding to finance the rise in lending. They become ever more reliant on market funding, which is often short term. When this cycle is allowed to continue for a period, the financial system becomes vulnerable.   Banks accumulate large loans secured on inflated collateral values.   Borrowers’ debt-servicing capacity becomes vulnerable to income loss.
33 It is also worth remembering that monetary policy works in part through channels that are unaffected by low rates, including its effect on the exchange rate, which provide further support by boosting labour income. 34 Bank staff estimate that such behaviour has reduced GDP by only 0.1% in total since 2007. A far more important determinant of the sustainability of defined benefit pensions is future productivity growth. 32  23  All speeches are available online at www.bankofengland.co.uk/news/speeches  23  That said, there are arguments for the “risk management” approach advocated by Charles Evans among others to minimise the risks of hitting the effective lower bound (ELB). 35 This approach calls for easing policy more aggressively than would be prescribed by the central outlook for activity and inflation when policy rates are close to their lower bound. The additional easing provided by such a strategy removes some of the downward bias to inflation outcomes introduced by the ELB. If it is understood by a sufficient proportion of agents, and affects their expectations, it becomes even more powerful. As well as considering monetary policy tactics within the current framework, an open question is whether the framework itself should be adjusted to embed a commitment to hold rates lower for longer to provide additional stimulus at the lower bound.

It is difficult to put a starting date on the financial revolution which I am attempting to describe - I mean the era of sophisticated asset and liability management techniques, of ever more exotic derivative and hedging products, and so on. But I guess it got going during the 1970s. Why not before? It seems that for most of the preceding postwar years banking and finance enjoyed a rather cosy and protected existence around the world. Capital controls and domestic regulation tended to constrain the scope for competition or diversification; many domestic banking sectors were cartelised to a significant degree, or in some cases state controlled; cross-border migration was, for one reason or another, rather rare. All in all, the incentive and scope to innovate were weak by today’s standards. The environment changed quite quickly when national administrations began to deregulate their financial sectors at the micro level and to free up movements of capital at the macro level. Just as importantly, the electronic data processing revolution began to open up avenues for financial engineering that could never have been dreamt of before. In the dealing rooms of London - then as now the world’s leading international financial centre - professional mathematicians moved in alongside, or even displaced, the “barrow boys”. Perhaps I should explain that the barrow boy stereotype was a Cockney young man from the east end of London with probably no very accomplished formal education but with strong mental arithmetic and trading skills, acquired from working on market stalls.