samchain/econo-pairs-v1 huggingface dataset:
This is consistent with a lower degree of matching efficiency post-crisis, with the unemployment level still remaining high despite rising labour demand over the duration of the recovery. Hysteresis effects and monetary policy So what is the role of monetary policy as regards hysteresis effects? Though our primary mandate is price stability and not employment, in conditions of weak aggregate demand there is typically a “divine coincidence” between those two variables, since unemployment rises while inflation falls after adverse shocks hit the economy. So, only by reducing labour market slack can we create the conditions for wage and price pressures to emerge and for inflation to return to our preferred aim within our definition of price stability. This is largely what we have seen in the euro area. Since the adoption of the ECB’s credit easing package in June 2014, around five million jobs have been created in the euro area. Model-based evidence indicates that our policy has contributed meaningfully to this increase: the current recovery has, by and large, been driven by monetary policy, with additional temporary support from the fall in oil prices. So, forceful policy action in the face of risks to our price stability mandate has measurably reduced the risks of hysteresis by creating the financial conditions necessary for growth and employment to flourish. What is more, our actions have also defeated a potentially very nasty form of hysteresis, namely a destabilisation of inflation expectations.

Rerunning our Phillips curve models using this broader measure of slack, or equivalently, a measure of “core” employment only, leads to the prediction errors for inflation becoming measurably smaller. Look at how the gap between actual and predicted inflation largely disappears on slide 5, in particular for the recent history. All this essentially means that it may take longer for inflation to gain steam and wage pressure might only start to rise meaningfully once adjustments in the “intensive margin” take hold – that is, once those who want to work more hours also succeed in doing so and once those who are still willing to work, but not currently counted as unemployed, are reabsorbed. Indeed, hours worked per employee have not recovered since the double-dip recession. So what is the link between these developments and hysteresis? To be sure, the increasing prevalence of part-time and temporary work reflects several factors – including, in part, important structural reforms in many euro area economies that have helped strengthen the resilience of the euro area. 4/9  BIS central bankers' speeches  Yet, the compositional effects we are seeing in the labour market may also reflect more crisisrelated factors, in particular uncertainty about the strength and durability of the recovery and pessimism about the long-term impact of the downturn on growth.
This over-indebtedness was moreover accompanied by a strong bias towards the construction and real estate development sector and, inevitably in an economy as strongly banked as Spain, this also led to excessive growth in bank lending and excesses in banks’ risk concentration. The relative ease with which these debts built up and their subsequent effects on activity, employment and financial stability were not, in any event, an exclusively Spanish phenomenon. Indeed, these and other similar developments have given rise to widespread initiatives at the international level to strengthen the economic policy tool box, with a new instrument – namely macroprudential supervision – being incorporated to head off this type of situation. In any event, the losses in competitiveness and excessive debt led to a large-scale imbalance in our foreign trade, resulting in a deficit of 10% of GDP in 2007 and requiring the resort to large volumes of external saving to ensure trade financing. But other elements of fragility emerged with the crisis. The worsening macroeconomic scenario and, in particular, the collapse in employment had a most adverse influence on public finances. The characteristics of labour market regulation meant that the effects of the adjustment to the sudden change in the business cycle fell basically on employment, and hardly on wage conditions or on greater hiring flexibility. In turn, the marked deterioration in public finances revealed weaknesses in the institutional workings of the public sector; in particular, the insufficiency of the disciplinary framework in place to ensure compliance with budget targets.

For 2012, the inflation rate will amount to –0.7%. For 2013, we expect inflation of –0.1% and for 2014, 0.4%. In the foreseeable future, therefore, there is no risk of inflation in Switzerland. The third quarter of 2012 saw weak growth and a decline in trading activity worldwide. Although growth in the US economy and some of the emerging economies picked up, a mild recession persisted in the euro area. In Switzerland, real GDP in the third quarter increased again following a temporary downturn. For the fourth quarter, however, we expect significant weakening in growth. Consequently, economic growth in Switzerland for the year 2012 is likely to remain unchanged at around 1.0%. For 2013, we expect growth of 1.0–1.5%. The downside risks for the Swiss economy remain considerable. Although the measures announced by the European Central Bank (ECB) have significantly reduced the probability of extreme developments in the monetary union, there is still substantial uncertainty in connection with the management of the debt crisis in the euro area. It also remains to be seen how far the upcoming budget consolidation in the US will hamper growth. This question is weighing on the sentiment in the financial markets and the real economy. Moreover, momentum in the Swiss residential mortgage and real estate markets remains strong, and has led to a further increase in risks for financial stability. Global economic outlook I would now like to outline the outlook for the global economy and Switzerland in more detail.
All in all, the monetary policy stance suggests a gradual increase of the repo rate towards more normal levels (see Slide 12). This is a precondition for the balanced development of the Swedish economy. As I mentioned two days ago, housing prices and debts among households have increased heavily for a longer time. The rate of increase of household debts has far exceeded the rate of increase of incomes. If this development continues, imbalances may arise in the Swedish economy over the long term. Consequently, in this regards, the normalisation of the repo rate level may also contribute to promoting a stable economic development in the future. Even if the development of Sweden’s economy is favourable, it is naturally not risk-free. What risks can we see at present? Firstly, the krona may appreciate more than we had expected. The assessment we have made is that the krona, to a significant extent, already reflects the high growth rate of GDP and the strong state of public finances, for example. However, I would like to point out that forecasts of exchange rates are always associated with significant uncertainty. It cannot be ruled out that the favourable development of the Swedish economy has led many investors to reappraise their view of investing money in Sweden. So could an excessively strong exchange rate form a problem? Yes, it may form a “problem” in so far as demand for Swedish exports will decrease and inflation may not increase in line with expectations, as imported goods become cheaper.

[9] That gives us unique bargaining power to shape openness in a European direction and strengthen ties with key partners, such as those on whom we rely for critical resources. And where we see our interests being threatened, we can use our economic weight more strategically – something we have already started to see with the unprecedented sanctions placed upon Russia. But we must also be prepared for a future in which the global economy could fragment. And the best insurance against a more uncertain world is building more resilience at home. So, the second challenge for Europe is to develop more our own sources of growth. Here, the new global map presents Europe with an opportunity. As energy security becomes imperative, we can put climate-related investment needs – especially in clean energy – at the centre of our growth model, strengthening domestic demand. These investment needs will amount to almost half a trillion euro on average per year until 2030. [10] We can also use the green transition as a spur to digitalise the European economy, since digital technologies could reduce global emissions by one fifth by 2050. [11] That could increase productivity growth and help ensure that green investment does not put excessive pressure on prices. But the ambitions of this new growth model will require an enormous amount of financing. And here the financial sector can play a crucial role, if the enabling policies are put in place.
Moreover, the adjustment of the sector must be monitored before Law 20,958 on Contributions to Public Space comes into effect, aimed at making real estate projects accountable for the impacts they have on local mobility. Regarding housing credit, the stock of mortgage loans showed a rebound in the last quarter (figure 11). The number of bank mortgage debtors with more than one housing loan continued to grow, reaching 29% at the statistical close of this FSR. A subset of such debtors are investors who buy properties for rent. Household financial indicators show no change in the risks identified in the last FSR, which are mostly related to the future evolution of the labor market. Since the last Report, bank mortgage debt increased, while consumer debt with banks decelerated, and accelerated with other sources. Thus, as of the second quarter this year, the aggregate debt of the sector stood at 45% of GDP (figure 12), placing Chile in the upper segment of a sample of emerging countries but below developed economies. However, the median financial burden has remained stable at around 20% of income due to lower interest rates. In terms of financial gaps, there was a greater use of credit and rolling lines, reflecting tighter conditions in some households. Non-compliance indicators have remained relatively stable at low levels for mortgage loans and have risen for consumer loans. In particular, consumer credit write-offs and delayed repayment of retail lending have both increased (figure 13).

Fortunately, the financial guillotine is not preordained, for Benoît did not spend his days in power as did Louis XV. Where the king grew idle, Benoît remained frenetic (189 public speeches during his eight years). Where the king was conservative, Benoît was radical. Where the king became nostalgic, Benoît always looked forward. If central banks are to rise to their challenges and serve our citizens, we will need to build on Benoît’s legacy. I. Improving market functioning Let me start with market functioning. Before the crisis, financial alchemy appeared to have sliced, diced and distributed risk to those who wanted it most. The revolutions in securitised and derivative finance were cheered on by policymakers who saw more markets as the solution to any market failures and who believed the lie that markets always clear. But of course markets always clear only in textbooks. In reality, people are irrational, economies are imperfect, and nature itself is unknowable. The pre-crisis system had merely spread risk, contingently and opaquely, in ways that often increased it. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  Once the crisis began, risk quickly concentrated on the balance sheets of intermediaries that were themselves capital constrained. And with the fates of borrowers and lenders tied together via hyper-globalised banks and markets, problems at the core spread violently to the periphery. The post-crisis response included major reforms to simplify markets and make them more robust.
Finally, in the financial field, the restructuring initiated a year earlier was accelerated to overhaul the savings bank sector. Thanks to these measures, the recovery of the Spanish economy remained on track, although it continued at a slow pace, due to the very need to undertake unavoidable adjustments. In this respect, the weight of real estate activity in output continued to decline and the external deficit was also further corrected. There was no significant progress in inflation, but this was due to the influence of temporary factors, such as the rise in VAT in  2  BIS central bankers’ speeches  July last year and the hike in oil and other commodities prices. Once these effects have worked through, inflation should fall again in the coming months, although for this to happen it will be vital no second-round effects should come about, as these would harm the economy’s competitiveness. Write-downs of the balance sheets of non-financial corporations and households have continued, with a slight decline in the outstanding balance of credit extended to these agents. In the case of non-financial corporations, behaviour has differed across the productive sectors, with modest increases in financing to companies other than those in real estate development and construction. In the case of households, deleveraging will no doubt be slower, insofar as the bulk of household debts are in mortgage loans extended over long terms, whereby repayment will be gradual.

Rising trade tensions and the growing use of sanctions as an instrument of foreign policy have meant that the laws of the United States are increasingly being applied outside its jurisdiction. This takes the form of penalties for societies outside the United States and the prevention of access to the US payment system and is based on the central role played by the US financial system and the US dollar in global trade. Several European governments believe that this situation could be mitigated by increasing the international role of the euro. But if markets are to entertain the possibility of an enhanced role for the euro, we need to consider what the conditions are that underpin the dollar’s dominance. The list is long, but the fact that the dollar is an expression of an integrated capital market is certainly one of those conditions. [34] For the EU to meet that condition – which, at this stage of its development, is more achievable than others – would require a complex programme of legislative and institutional harmonisation, which however could be put in place in short order. 6 / 10  BIS central bankers' speeches  The second reason why an institutional approach can help produce better outcomes is that institutions and their actions can be subject to more clearly defined democratic control. Precisely because those institutions are invested with a mandate and defined powers, it is possible to make a more direct link between decisions and responsibility.
This is the most important reason why the implementation of monetary policy has been delegated to central banks. In Norway, the responsibility for interest rate decisions was delegated to Norges Bank in 1986. The differential between Norwegian and German implied forward rates 10 years ahead provides an indication of how successful we have been in creating confidence that we will attain the inflation target. Implied forward rates are calculated using the yield curve and can be interpreted as the expected three-month rate ten years ahead. The forward rate differential can be interpreted as the expected inflation differential in the long term plus a risk premium. In the euro area, the objective is to keep inflation below 2 per cent. If we assume that this gives an average inflation rate of 1½ per cent, the inflation differential against Norway will be about 1 percentage point. This means that an investor that is seeking the same real return must have a one percentage point higher interest rate in Norway than in Germany. After the introduction of the inflation target, the differential between German and Norwegian forward rates remained at about 1 percentage point for a long period. The differential has recently narrowed to about 0.8 percentage point. This indicates that there is confidence that we will attain the inflation target. Monetary policy shall contribute to smoothing fluctuations in the economy that are due to changes in demand.

Today’s flexible inflation targeting regime establishes a firm framework for monetary policy and provides clear guidelines on how monetary policy is to respond in different situations. The fiscal policy authorities can thus internalise the monetary policy response pattern. This is only natural, since the mandate for monetary policy was laid down by the Government and the Storting. In other words, the proper framework is in place for delegating interest rate decisions, but the central bank’s response pattern must be known, so that the fiscal authorities can take this into account. Game situations that may arise with an independent central bank with an inflation target are further discussed in Leitemo (2000) and in Steigum (2000). Norges Bank analyses the inflation outlook three times a year in its Inflation Report. The Executive Board discusses the economic outlook at a separate meeting three weeks before the Inflation Report is presented. The following day, the Executive Board summarises its discussions and assesses the consequences for monetary policy for the next four months. This assessment constitutes an important internal reference when the Executive Board later makes a decision regarding the interest rate. It will also provide the basis for our external communication through speeches and the media. The key rate is assessed by the Executive Board every sixth week. Monetary policy decisions are announced in a press release followed by a press conference.
The Bank’s Decision Maker Panel also suggests that employers’ expectations have shifted, with the share of firms expecting their employees to work from home at least one day a week beyond 2022 tripling relative to 2019. A structural shift in more working from home is likely to lead to preferences for larger homes, with less weight attached to considerations around commuting times relative to pre-pandemic. There is also likely to be a regional dimension to any such behavioural shift in the housing market. Remote working considerations would point to a shift away from urban areas like London and towards suburban areas and further out. Post pandemic health-related concerns about densely populated metropolitan centres might also encourage such a shift. 20  Estimates vary as to whether such holidays have any aggregate impact. For example, Best and Kleven (2013) estimated that about a third of the impact of the 2008-09 holiday was solely due to timing, but that there was an aggregate increase in transaction volumes. In contrast, Besley et al (2016) look at the same episode and find no aggregate impact, only a shift in transaction timing. See https://obr.uk/docs/dlm_uploads/Working-paper-No.10-1.pdf for discussion. 14  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  14  Financial considerations may accentuate any such effect, given the gap in affordability in London and the South East relative to other parts of the UK. Credit constrained renters in high cost areas might take advantage of new norms of working to move from high-price areas of the UK to lower-price ones.

Finland responded by devaluing its currency by 6 per cent. In Norway, industrial leaders and industry organisations also pressed in favour of a devaluation of the Norwegian krone. Norway’s finance minister Rolf Presthus characterised the Swedish decision as a serious setback for Nordic cooperation3, and chose not to change the value of the Norwegian krone. In much of the 1970s and 1980s, economic policy in Norway and Sweden lacked a long-term approach and credibility. This contributed to wide swings in production and employment. With a policy of low interest rates and devaluation, inflation became entrenched at a high level. Frequent devaluations in the period following 1976 could not prevent a weakening of the manufacturing sector in the long run. On the contrary, they proved to be self-reinforcing. The wide fluctuations culminated in a borrowing spree that started in the mid-1980s, first in Norway and then in Sweden. The borrowing spree was succeeded by deep economic crises. Both Norway and Sweden had to abandon their fixed exchange rate policy in 1992. Important reasons were freer capital flows, deeper financial markets and hence a surge in cross-border capital movements. Sweden switched to inflation targeting in 1993 and was among the first countries to introduce a system that would later become the norm for small and medium-sized economies. The Riksbank succeeded fairly quickly in anchoring inflation expectations and keeping inflation low and stable in Sweden. Norway followed suit in March 2001.
Lessons from the pandemic: Has the simpler post-2008 financial system held up? And where do we go from here? Speech given by Christina Segal-Knowles Executive Director Financial Market Infrastructure Directorate  Official Monetary and Financial Institutions Forum 29 January 2021  I am grateful to Stephanie Haffner, Paul Brione, Pavel Chichkanov, Sarah Crowley, Harpal Hungin, and Barry King for their help in preparing these remarks. I am also grateful to David Bailey, Paul Bedford, Lee Foulger, Andrew Hauser, Matt Roberts-Sklar, Nick Jackson and Gerardo Ferrara for their helpful comments 1  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  The topic of my talk today is lessons we can draw from the market turbulence we saw in March and April 2020. But before we get there I want to talk about an earlier crisis. Let’s rewind to 2008. On September 15th, Lehman brothers collapsed taking with it one side of $ trillion in derivatives contracts. Most of these derivatives were bilateral contracts – a spaghetti bowl of interconnectedness. As Lehman collapsed and others teetered near the edge, no one knew who was holding the bag. The result was panic, which, as explained by Ben Bernanke, may have been a key driver of the severity of the Great Recession. Its early stages would have been significantly less severe without the confidence collapse on Wall Street.1  1. Simpler Now let’s fast forward to 2020. Pandemic. Economic crisis. Market turbulence. But no panic in the banking system. There were a number of reasons.

V.  Safety nets: crisis resolution  In free market economy, no policy and no supervision can prevent the possibility of financial distress in any particular financial institution. What the public policy can do is to minimize the likelihood of systemic crisis. Crisis resolution is the key to avoid systemic disturbance. As we know, the ultimate policy choice for the authorities is to find the balance between the public sector and private sector solution from the one hand and between the pre-determined schedule and ad hoc approach from the other hand. Estonia's currency board regime sets for Bank of Estonia clear and strict limits that exclude several options available for the authorities in many other countries. By limiting the money supply to net foreign assets of the central bank, the room for emergency liquidity support is very limited. Therefore, in our case, the private sector solution is preferable and particular modalities of crisis resolution will depend very much on the circumstances. At this point, I would like to refer back to previous parts of my speech and underline that this particular approach rests upon a few strong fundamentals. Continuous analysis of financial system developments and early warning indicators, importance of strong owners and sound risk management in banks, high liquidity and capital requirements – these basic principles are a necessity for us. By combining the principles just mentioned, we can now describe a few hypothetical crisis resolution situations in Estonian financial system.