samchain/econo-pairs-v1 huggingface dataset:
5  All speeches are available online at www.bankofengland.co.uk/speeches  5  Productivity growth in the UK has consistently surprised to the downside since the crisis, averaging 0.5% per year since 2010 or around 1.5 percentage points below its historical average. We would expect weak productivity in turn to have been reflected in lower pay growth. Consistent with that, the fall in productivity growth since the crisis largely explains the (second) downward shift in the Phillips curve (Charts 6 and 7). Since 2012, the Bank’s forecasts have consistently over-estimated productivity growth, on average by just under 1 percentage point per year (Chart 10). This suggests a sizable fraction of the Bank’s negative forecast errors for wages might plausibly be explained by downside surprises to productivity, alongside the effects of a lower than expected NAIRU. Had the Bank known a decade ago how weak UK productivity growth (and how much lower the NAIRU) was likely to be, its forecast errors for wages would have been smaller. We can confirm this by re-running our pay equations substituting in the actual outcomes for inflation, the unemployment gap and productivity growth, in place of the forecasts for these variables at the time (Chart 11). The fitted values for wage growth now track actual wage growth reasonably closely. With perfect foresight about its determinants (productivity, unemployment and the NAIRU), there would have been far less systematic over-estimation of pay growth during the lost decade.

Private sector pay growth (again excluding bonuses) has been grinding through the gears; it recently hit the psychologically-important 3% barrier. Private sector wage settlements so far this year are running at 2.8% and in some sectors, such as construction and IT, are running well in excess of 3%. The public sector has, for a number of years, been held to a 1% pay cap. This had the effect of suppressing whole-economy pay growth, both directly (given the public sector comprises around 18% of total employment) and potentially indirectly (due to the possible spill-over effects of public pay awards on the private sector). That public sector pay cap has now been lifted and decisively so. Earlier this year, over 1 million NHS workers received a one-year pay settlement of at least 3%. Some workers have received double-digit pay rises. They have been joined recently by a further 1 million workers from the armed forces, police and teachers, who have secured pay rises of between 2-3.5%. The largest segment of public sector workers – including those in Local Authorities – have yet to settle. But with the cap breached, it seems possible their pay settlements could also ratchet upwards. We can see that upward ratchet in pay in the distribution of pay settlements (Chart 24). According to the Bank’s comprehensive wage settlements database, so far this year around 65% of deals have been struck at rates above their level the previous year. The largest contributor to this rightwards shift in the settlements distribution has been the public sector.
But nowadays his legacy underpins the thinking of Czechs about inflation, for better or worse, and through that, the stability of the Czech currency. Thank you for your attention. References: Ichiro Iwasaki & Akira Uegaki, 2017. “Central Bank Independence and Inflation in Transition Economies: A Comparative Meta-Analysis with Developed and Developing Economies,” Eastern European Economics vol. 55(3), pages 197–235. Thomas J. Sargent, 1982. “The Ends of Four Big Inflations,” NBER Chapters, in: Inflation: Causes and Effects, pages 41–98, National Bureau of Economic Research, Inc.  2/2  BIS central bankers' speeches

The best we can probably aspire to is directing monetary policies to achieving domestic price stability in a sensible manner and seeking to communicate our policy intentions as clearly as possible. Let me finish with a few words on the exit from unconventional monetary policies. While it may still be a way off, we know it will come eventually. And the recent market volatility prompted by heightened expectations of imminent tapering in the rate of asset purchases by the Federal Reserve has provided a salient reminder that it may not be smooth. Moreover, although the adoption of accommodative policies was synchronised across the advanced economies, the heterogeneous nature of the recovery, with the United States leading the way and Europe bringing up the rear, means that exit is unlikely to be synchronised, which will complicate matters. The international spillovers mentioned earlier can obviously be expected to operate in reverse on exit. And indeed, we have just seen such synchronised increases in long-term sovereign bond yields internationally, together with capital outflows from emerging economies and associated downward pressure on their currencies. But for these countries, the greatest danger during exit will probably lie in the risk of future financial sector disruption if outflows expose currency mismatches on bank and corporate balance sheets. For advanced economies, particularly those lagging behind on the road to exit, there is a risk that market participants see tightening moves in, say, the United States as indicating that tightening is imminent elsewhere.
The labour market should see a gradual decline in the number of jobseekers in the second half of the year as companies gradually use up the resources currently available. A much-debated question is the extent to which monetary policy contributes to long-term growth. It would appear that the growth of an economy depends first and foremost on the development of its resources and then on their productivity. Monetary policy cannot change this situation; it can only be vigilant in maintaining a stable framework that is conducive to the efficient development of productive activities. The National Bank succeeded in doing this in 2004. Moreover, our forecasts suggest that price stability should continue in 2005 and 2006, with inflation averaging around 1%. Completion of the gold sales On 31 March, we completed our sales of the 1,300 tonnes of gold no longer required for monetary policy purposes. These sales had begun on 1 May 2000. The fears expressed in some quarters that our gold sales would destabilise the market have proven to be unfounded. By selling the gold in small instalments and according to a fully transparent schedule, we succeeded in assuaging the market's fears. Moreover, our sales strategy and risk hedging also proved effective in financial terms: the 1,300 tonnes of gold were sold at an average price of CHF 16,241 per kilo. This was CHF 700 more than the average market price during the same sales period. An additional profit of more than CHF 900 million was therefore realised.

Since the single European currency was introduced on 1 January 1999, the Swiss franc's nominal appreciation has been more than offset by the inflation differential between Switzerland and the euro area. The competitive position of our exporters has thus improved against their European counterparts. The dynamism of the Asian economies has boosted demand for commodities, notably oil. The soaring price of this "black gold" continues to pose a serious threat to the recovery of the industrialised economies. Guardedly optimistic outlook for 2005 As it is benefiting from price stability, low interest rates and a strong competitive position, the Swiss economy is well placed to profit from the world economic upturn. However, the outlook for the global economy in 2005 is not quite as good as it was in the past year: growth is put at around 4%, down from 5% in 2004. Growth will continue to be driven by Asia and America. Europe – and especially  2  BIS Review 30/2005  Germany, our biggest market – will continue to chug along with a growth rate of between 1.5% and 2%. In this slightly less dynamic environment, the Swiss economy is unlikely to exceed its 2004 growth figure. Business activity has fallen off slightly since the autumn but should slowly gain momentum again in the next few months. Overall, we are expecting GDP to grow by about 1.5%.
It has become commonplace that shadow banking somehow exacerbated the boom, and complicated the rescue efforts of the authorities during the bust. 1 That is true. But there has been relatively little discussion about what this means for policy. We do not need to get too bogged down in defining what is meant by “banking” here. I mean it simply to refer to firms that take on-demand or highly liquid deposits, and use those liquid savings to provide term loans to households, firms and other parts of the financial system. Banks are, therefore, absolutely central to the monetary and payment system; and they are also vital to the credit system. They are leveraged; they run maturity mismatches; and their net worth is often uncertain. So they are exposed to runs, with spillovers to the rest of the system and the economy more widely. Reflecting that, they have long functioned within the terms of an established social contract with the authorities. 2 It has involved industry-financed deposit insurance (and now special resolution regimes); prudential regulation and supervision; and liquidity insurance from central banks. That regime reflects the spillovers (“negative externalities”) that flow from bank failure. But precisely because the regime aims to place a higher weight on the safety and soundness of banking than banks and their shareholders would themselves, it sets up incentives for some types of business to be booked outside the banking system.

Erroneous price signals lead to mistaken investment decisions, that is, to a less efficient use of resources, which reduces the economy’s productive capacity and, ultimately, its growth. There is abundant evidence of the harmful effects of inflation on long-term growth (Barro, 1995; De Gregorio, 1995). But, why does inflation tend to be higher when the central bank is not autonomous? To begin with, there is a need for public expenditure financing. There are various reasons why there is always pressure to increase public spending. Many of them are well-known and it is beyond the purpose of this presentation to discuss them. The truth that this tendency to raise public spending combined with the fact that the inflation tax is easy to collect, creates a natural pressure towards higher inflation. BIS Review 156/2009  1  Numerous episodes where fiscal objectives have dominated price stability goals have resulted in significant inflationary spirals, which are very costly for society. This fact is wellknown in Chile and in the rest of our region. A second element behind the inflationary bias has to do with the so-called dynamic inconsistency problem. In parallel with the tendency of the government to increase public spending comes the incentive to boost economic activity above sustainable levels. There are several reasons for this to occur. Potential market failures may result in a less than socially optimal output level, or political cycle motives can lead the central bank to try to boost economic activity beyond the level believed to be sustainable in the medium term.
In a recent study by the Managed Funds Association, BNY Mellon and Hedgemark, 4 it was found that 79% of global hedge funds now separate the roles of the risk manager and fund manager, with 60% of the larger hedge funds having a dedicated risk management function. This augurs well for the hedge fund industry, as it allows the industry to grow in a more sustainable manner with strong internal control systems and risk management oversight. Asia is well placed to provide capital and investment opportunities As global institutions and investors seek to address challenges resulting from structural shifts in the global economy, many are turning to Asia to harness opportunities and to generate higher returns. This is due to a few reasons. Firstly, Asia has been leading the global recovery with growth expectations in developing Asia projected to exceed global growth at 6.7% in 2012 and 7.2% in 2013. 5 Secondly, both demand and supply side factors in Asia are relatively positive. Corporate and government balance sheets are generally healthy. Households are not overly levered, savings rates are high and unemployment is comparatively low. The rising middle class, highly educated workforce and favourable demographics are also plus points for Asia. These factors, coupled with Asia’s strong commitment to economic openness and free trade, are important in creating a business friendly and conducive environment for its financial sector to continue to thrive and grow.

Diagram 4  Cumulative change in employment 1960-96 T housands 100 10 00  Public employment  800 80 0  600 60 0  Total employment  400 40 0  200 20 0  0  Private employment  -200  -4 00 60  65  70  75  80  85  90  95  Source: Statistics S weden  The great challenge Sweden faces in the future development of employment is evident from Diagram 4, which shows that for a long time there has been no net increase in private sector jobs. This is the trend that must be broken. While there has certainly been some increase in employment in boom years, in the subsequent downturns virtually as many jobs have BIS Review 38/1997  -9-  disappeared. The overall increase in employment has come from an expansion of public sector jobs; one million jobs were created in this sector between 1960 and 1990. Now that, for various reasons, the political system has been obliged to arrest the public sector’s expansion, employment has also fallen.
6 / 14  BIS central bankers' speeches  Even if this episode has driven inflation above the tolerance range, the main issue from the standpoint of monetary policy is that inflation expectations have always been anchored to the target. And if at some point it seemed that they could deviate, we acted promptly to prevent it. There is no doubt in my mind that the main reason were the actions of the Central Bank of Chile, which attest to its commitment with its constitutional mandate to keep inflation low and stable. This record has played an essential part in our solid reputation. The third—and especially important—challenge is that we must never lose sight of the fact that the benefits of boosting medium- and long-term growth greatly outdo those of smoothing the cycle. Hence, it is critical that as a country we put special emphasis on medium-term growth. We should think particularly carefully how it is affected by the various policies adopted, and strengthen those that favor it. Without growth, there are simply no resources to deepen social policies. As I mentioned when I presented our June Monetary Policy Report, we are one of the few countries in the region that have approached the borders of development. In the past, other countries fell short of the opportunity. Grabbing it depends on us only. Commodity cycles and international windfalls come and go.

The low net debt of the Treasury, courtesy of a responsible fiscal policy, has allowed for this gradual adjustment without major surprises. However, there are limits and the debt has been increasing. In this context, I am particularly concerned that the accumulation of commitments could end up straining our public finances. In the case of monetary policy, the limit comes from credibility. There is an explicit objective—the inflation target—and a market that monitors on a daily basis to see whether our monetary policy conduct is consistent with achieving that objective. For as long as the market remains confident in the Bank’s capacity and, above all, on its commitment to take inflation to 3% in the two-year horizon, an expansionary monetary policy will be successful. The minute we lose that confidence, we will fail. That is why we are adamant about our concern with inflation expectations, insisting that we will do whatever it takes for it to stand at 3% over the forecast horizon. The good news is that we have succeeded: despite inflation’s high volatility, due mainly to the sharp variations in the exchange rate, expectations two years out have remained at 3%. This encourages us to keep our guard up and not to neglect what has been achieved or try to extract from monetary policy more than it can deliver. The second challenge is that experience suggests that our first line of action to deal with the cycle is monetary policy.
It is of course obvious that this paradox is not unintentional, and has, in fact, been carefully thought through and deliberately introduced, and has obviously been done in order to establish an extremely vital and far reaching principle. That is, the need for the Central Bank to retain intellectual and operational independence, but to temper it with the pragmatism of the national deliverables of the economic agenda that has been decided by a democratically elected government. Going further, Exter’s comment that “the effectiveness of this cooperation and coordination between the Board and the Government will depend more upon the men occupying the key positions at particular times, than upon any legal formula”, emphasizes the complexity and the delicateness of the relationship, which he has described in lucid and clever language. Mr. Chairman, All these positions that I described to you now highlight another very important fundamental principle that was set out in Exter’s Central Bank Report of 1949. That is, Exter’s wise words that “good central banking is less good law than good practice”. After 7 years as the Governor, I can tell you that that is one of the wisest comments in the Exter Report, and an appreciation of that principle must be understood by all stakeholders, especially at the current turbulent times, when Sri Lanka is on a fast track to economic development. In fact, over the past several decades, monetary policy objectives, instruments and operating mechanisms have changed significantly.

In particular, there were three episodes between the mid-1970s and early 1990s, when inflation rose very sharply, and at around the same time output contracted. While there are many in the room that don’t need reminding, I thought I would just give the younger members of the audience a reminder of just how desperate those times were (Chart 1). In 1975, RPI inflation peaked just shy of a staggering 27% while at the same time output fell. It was this era that entrenched the term “stagflation” in the minds of the public. Inflation fell back sharply over the subsequent year or so, only to rear its head again in 1979-80 – this time peaking at around 22%. Once again output contracted and unemployment rose sharply (Chart 2). A third and final bout of rising inflation and falling output occurred in the early 1990s, with the unemployment rate once again rising above 10%. On average, inflation in the 1970s was around 13% and 7.5% in the 1980s. The UK macroeconomic framework Why was it that output and inflation were so volatile then and why has economic performance improved so much in the past 10 years? These questions are vital as we face more uncertain times ahead and to ensure that we avoid repeating the mistakes of the past. I would point to three main factors. There have been changes to the structure of the UK economy that have made it more flexible and adaptable.
This is the starkest example of fundamental uncertainty – science cannot say that this will happen, but neither can it completely rule out disastrous outcomes. Threshold effects occur when climate change reaches a tipping point and cannot be reversed, but instead speeds up further change. There are several examples: melting icecaps, thawing permafrost, forest fires that can devastate areas of the Amazon rain forest. Considering uncertainty is a natural part of all decision-making. In the monetary policy process, for example, there is uncertainty about underlying economic correlations, about data, about forecasts, etc. In this process, it is common to formulate decisions so that outcomes are as good as possible on average. 5  See also Lane (2019) for a discussion. 4 [18]  When it comes to decision-making in the climate area, Martin Weitzman’s research has had a substantial impact.6 In his view, decisions should be formulated in order to avoid the worst outcomes. This is easy to understand from an insurance perspective. When we take out a fire insurance policy, for example, we give higher weight to the worst outcome (the house burning down) in our risk assessment than the most likely outcome (the house not burning down). If we had not done this, we probably would not have taken out fire insurance. We should use the same thinking regarding climate policy. When we are exposed to serious threats at the same time as there is considerable uncertainty, we should insure ourselves so that we avoid and reduce the consequences of the worst outcomes.

Humans design and control machines, and the algorithms that let those machines learn, whether that is automating the recruitment process or providing financial advice. As with any member of staff, coders, programmers and managers can be subject to the myriad of human biases, and the outputs of machines may likely reflect those biases. It follows that the regulatory reforms over recent years were developed to overcome the very ‘human’ problems embodied in people-centric workplaces – be they cultural failings and lack of diversity of thought; poorly aligned incentives, responsibilities and remuneration; or short-termism and other biases – remain equally relevant to an AI/ML-centric workplace. In fact, it may even become harder and take longer to identify root causes of problems, and hence attribute accountability to individuals. For example, how would you know which issues are a function of poor design – the manufacturer’s fault if you have bought an ‘off the shelf’ technology product – or poor implementation – which could demonstrate incompetence or a lack of clear understanding from the firm’s management. In the context of decisions made by machines which themselves learn and change over time, how do you define what it means for the humans in the firm to act with “reasonable steps” and “due skill, care and diligence”? In a more automated, fast-moving world of AI/ML, boards – not just regulators – will need to consider and be on top of these issues. Firms will need to consider how to allocate individual responsibilities, including under the Senior Managers Regime. Machines lack morals.