samchain/econo-pairs-v1 huggingface dataset:
8  For a further description of the fan chart methodology, see Inflation Report May 2002 p 48-49 and Britton, E, Fisher, P and Whitley, J (1998) ‘The Inflation Report projections: understanding the fan chart’ Bank of England Quarterly Bulletin February 1998. 4  BIS Review 17/2005  Nowadays, each Inflation Report includes fan charts for inflation and output which reflect the Committee’s views on the full distribution of possible outcomes. While the width of the fan bears some relation to the size of forecast errors over the past decade (the distribution of past forecast errors provide a benchmark calibration), its main features – the moments of the underlying distribution – change with each forecast to reflect the Committee’s best judgement about the balance of risks around the outlook for inflation and output and the degree of uncertainty. While many other central banks now publish fan charts, the MPC is still relatively unusual in basing them on the policymakers’ subjective view about the distribution of risks, rather than staff views or historical/statistical measures of past errors. The MPC’s approach to constructing fan charts can help the members come to an agreement on the substantive issues, while retaining their individual views. This is because the risks are often where the major differences of opinion amongst members lie. And while the members may be able to agree on a collective view of the overall outlook including the degree of uncertainty and balance of risks, it might be for slightly different reasons.

For example in our latest Inflation Report we published a central projection which showed inflation rising gently but steadily above the 2% target, assuming a nearly flat profile of interest rates out to three years. But the Report noted that the balance of risks was to the downside and singled out some key near term risk areas, such as the household sector. This provided a nuanced background to the MPC’s February decision to hold rates unchanged. Forecasts and public communication All inflation targeting central banks use their forecasts as a communication tool. They provide a coherent statement of policymakers’ thinking about the economic outlook and the policy stance. Together with the minutes of the policy meetings (in our case published with individual votes after two weeks), this helps to discharge the Committee’s democratic duty to explain itself, as well as supporting its credibility and helping to anchor inflation expectations.13 The Inflation Report plays a central role in the Committee’s communication. Since August 2003 the Governor has fronted the regular Inflation Report press conference, and the MPC’s appearances in front of the Treasury Select Committee has been (loosely) linked to the Inflation Report cycle. This brings me to a much debated question: how much information should a central bank provide? Academics have tended to press the case for more transparency, while practicing central bankers have been more cautious, (though much more predisposed to openness than they would have been twenty years ago).
A strong interest in gaining access to this capital can easily arise. There is a risk that entrepreneurship, talent and energy in the business sector and political life are used to acquire a piece of the economic rent – to dance around the golden calf – rather than for innovation, restructuring and growth. Decision-making forms in economic and political life must provide an effective shield to prevent special interests from gaining a dominant influence and control over petroleum wealth. The risk is particularly high in cases where markets are not efficient and where the remuneration for an assignment or the price of the resource that is transferred from the state are agreed through negotiations. The EEA Agreement restricts the scope for favouring individual enterprises or groups of enterprises. The eager control exercised by the surveillance body, the ESA, reduces the possibility for pressure groups to prevail. It is important for growth capacity that both national and international competition authorities engage in effective supervision in order to avoid the development of a business sector that is dependent on protection. Against this background, I would like to expand on the central government’s asset position and wealth management.

We can see that banks did not restrict lending, as was the case, for example, during the crisis of 2014–2015, but, on the contrary, significantly increased it and, moreover, restructured a large volume of their clients’ loans. That is to say, they supported borrowers in an acutely difficult period when they needed financial resources. This made it possible to avoid more serious consequences both for banks, whose credit losses were not as serious as many expected, and for the economy as a whole. It seems to me that this shows that building such long-term relationships with clients is very important, and banks had the opportunity to do so because the financial stability they had established in previous years made it possible to carry out a policy of not demanding that their clients immediately repay loans and continuing to issue loans. Therefore, it seems to me that this is a positive result of an overall very difficult last year. The corporate portfolio has shown serious growth, by almost 10%, and continues to grow. In the first four months of this year, growth was 3.5%, taking January to the end of April into account. That is, this trend continues to be seen this year as well. At the same time, it is important that not only large companies are being granted loans, but small- and medium-sized businesses too: the portfolio of small- and medium-sized businesses grew by 20% last year, which is a record level since 2014.
This  means that there’s not a stable long-run average ratio to use as a comparison for today’s ratio, so the analysis we did for the other cities wouldn’t be that meaningful for Portland. What we do know is that the pace of home price appreciation in Portland has been close to the national pace over the past few years, lagging behind somewhat in 2003 as the state struggled to recover from the 2001 recession, but mostly catching up in 2004 and early 2005 as economic growth picked up noticeably in the state. As of early this year, home prices in the Portland area were up 12 percent over a year earlier, only a bit below the national pace of 12½ percent. More recently, I’ve heard reports that upscale homes in the Portland area are increasingly being sold at above-asking price—a phenomenon we’re all too familiar with in the Bay Area! So it’s clear that Portland’s housing market has been hot, but I’m sure that’s no surprise to you. In any event, as I said before, the fact that the ratios for the nation and many areas of the country are higher than normal doesn’t necessarily prove that there’s a bubble. House prices could be high for some good reasons that affect their fundamental value. The most obvious reason is the low level of mortgage rates. This stems both from very stimulative monetary policy and from the conundrum I discussed earlier.

Inflation risks Let me start by looking at some of the factors that create risks for the inflation outlook and explain why I’m nevertheless fairly optimistic that inflation will moderate over the next few years. Of course, oil prices do pose an inflation risk. The price of oil has just about doubled over the past two years, from the low $ range to around $ per barrel recently. Higher oil prices are reflected in higher “headline” inflation. And they have been passed through to some extent to core inflation as well, but, unless they rise further, the effect on core inflation should begin to dissipate next year. Another risk relates to labor compensation, which is the single largest component of business costs. Recently, one measure of compensation per hour jumped abruptly. Here, too, though, I am not terribly worried because a good part of the jump is probably accounted for by one-time events, such as bonus payments and the exercising of stock options. This interpretation is supported by readings from an alternative measure of labor compensation, the Employment Cost Index, which excludes these items and has recorded only modest increases. I’m also quite encouraged by several developments that portend a moderation in inflation going forward. For example, even with the recent revaluation of the Chinese renminbi, the dollar has increased by 7½ percent against major currencies so far this year, which should take some of the pressure off of import prices.
20  See for example Kydland, Finn and Edward Prescott (1977), “Rules rather than discretion: The inconsistency of optimal plans”, Journal of Political Economy, vol. 85, pp. 473–490. 21  The February Monetary Policy Report discusses the macroeconomic consequences of a fall in housing prices in the article “The household balance sheet and the macroeconomic assessment”. 14  BIS central bankers’ speeches  imbalances rather than to financial stability. They are also imbalances that must be viewed in a much longer perspective than the perspective we usually adopt when we make decisions about the repo rate. Financial and macroeconomic imbalances of this type can of course result in financial crises, but do not do so automatically. We should therefore distinguish between avoiding such imbalances and avoiding crises than threaten the financial system. In both cases I believe that we need an active policy alongside the standard stabilisation policy. I am sure that everyone agrees that the Riksbank has a central role to play in analysing the emergence of financial and macroeconomic imbalances. However, what the role of the Riksbank should be when it comes to deciding on measures to counteract imbalances in the longer term is a more open question at present. In my view, it is important that macroprudential policy is put in place as a separate policy area. This would be good for financial stability, but also good for macroeconomic stabilisation.

The proposal of the Financial Crisis Commission has now been circulated for comment and I and the other members of the Executive Board of the Riksbank will now formulate our joint response to the proposal during the spring. Conclusions I thus believe that there are many indications that demand is too weak in the Swedish economy and that in principle this has been the case ever since the autumn of 2008. One should not have exaggerated expectations of what monetary policy can achieve when it comes to reducing the relatively high level of unemployment in Sweden. However, as long as inflation is expected to be clearly under the target of 2 per cent I believe there is scope to use monetary policy to try to alleviate the situation on the labour market. I have argued that one of the reasons why fiscal policy and monetary policy have not been used more actively to increase demand in the Swedish economy is the concern about financial stability. The risk that public finances will be radically weakened if the government is forced to intervene to support banks in crisis seems to be an argument for being cautious with public finances at present.
The costs of the first and the second crisis represent about 27% of Croatia’s GDP in 1999. It is obviously a very heavy burden on the economy. The costs mentioned are fiscal costs, borne by the taxpayers. Economic costs are certainly higher. If regulation and supervision are inadequate, bad banks will emerge or proliferate more than otherwise would be the case.4 This will not only impose costs on the budget, but the economy will suffer as such banks will not be efficient financial intermediaries. For example, banks may allocate resources (loans) not according to market principles and good banking practices, but in the aim to “favor” themselves (management), their relatives, friends, connected businesses, with other people’s money. Asset stripping, simple theft and similar activities can easily develop within and around banks. All those features will benefit only the few. As long as management of banks “can get away with murder” they will continue to behave in such a way. By creating a stable environment (both macroeconomic and financial) the central bank favours the long-term perspective. People should expect stability in prices and in the financial system, take a long-term view and get involved in long-term wealth creation and not only short-term redistribution gains. 3. Obstacles to transition - a personal account  Certainly, there is a long list of obstacles to rapid transition. Besides, I am sure that each one of you present here would have a different list of obstacles.

Therefore we, the policymakers, have to ask ourselves whether we have consistently checked our progress against what must be the ultimate goal of the transition process. My message here is not only that transition policies should ultimately benefit the people, but that the people have to understand why reforms are necessary and what kind of reforms we should pursue. In short they have to understand what the policymakers are doing. Let me stress that because of the legacy of socialism this goal is even more challenging in transition. Usually people are both averse to risk and have a high discount rate about the future. In socialism those two behavioral patterns seem to be even stronger. People who have spent part of their lives in a socialist system and came out of it only ten years ago, on average tend to be even: a) more risk averse and b) have stronger preferences for the present. a)  In socialism the notion of risk and its consequences were almost unknown. One can think of socialism as a big insurance company. No bankruptcies, no unemployment, no financial markets, no volatility whatsoever, very little choice (both for households and companies) as almost everything was laid down by the central plan. Most risks (which always exist) were taken by society as a whole (socialized) and were not individualized. Or, vice versa, individual decisions rarely affected individual wellbeing.
Labour market reforms enacted over the past twenty-five years have led to a more flexible workforce. Unemployment has fallen without generating unsustainable growth in wages, and hence inflation. And in recent years the role of migrant labour has been important in easing the bottlenecks and skill shortages in what was otherwise an undoubtedly tight labour market. Firms have been able to adjust and adapt to events more quickly and that has produced less volatility in output, employment and inflation for the economy as a whole. With economic growth expected to slow over the coming year pressures in the labour market are likely to ease, reducing the demand for migrant labour, and possibly beginning to reverse recent strong inflows. A second fundamental change has been to the monetary policy framework. The experience of those three recessions and bursts of inflation has led to a settled consensus that monetary policy should be directed at controlling inflation and that there is no long-run trade off between inflation and output growth. This consensus has been embedded by transferring interest rate decisions to an independent Bank of England, with a clearly defined inflation target of 2% measured by annual CPI inflation. That has helped build confidence that if inflation does move away from target, we on the Monetary Policy Committee will act to ensure that it returns to target in the medium term. That confidence should ensure that  2  It has only deviated by more than 1 percentage point from that average on 4 occasions.

Crucially we now have a credible framework for setting monetary policy to meet the inflation target in the medium term. Monetary policy cannot prevent the short-run ups and downs of economic cycles. In the current climate, the Committee believes that, if Bank Rate were set to bring inflation back to target too quickly, the result would be unnecessary volatility in output and employment. Instead we are focused on returning CPI inflation to the 2% target in around two years, when the present sharp rises in energy and food prices will have dropped out of the CPI inflation rate. We judge that in order for inflation to return to target it will be necessary for economic growth to slow this year, reducing the pressure on supply capacity of the economy and dampening increases in prices and wages. But the risks to both the upside and downside remain large and the MPC will continue to make its judgement about the appropriate level of Bank Rate month by month. The next year is not going to be comfortable for anyone and we already hear calls to change the system, the target, and our focus on inflation. But the new framework and the independence of the Bank was designed for difficult times as well as for plain sailing. I hope we can look to you and other businesses for support in doing what is needed to bring inflation back to target. BIS Review 80/2008  5  6  BIS Review 80/2008  BIS Review 80/2008  7
Taken together, these factors should underpin the growth of private consumption and investment, and thus that of domestic demand. The positive outlook for the euro area is also supported by external developments. The outlook for growth of the world economy, and thus for growth of euro area exports, has remained favourable. Forecasts of world growth have consistently been revised upwards over the past few months. Expectations of a period of sustained economic growth in the euro area can also be found in euro area bond markets. Overall, longer-term bond yields in the euro area have shown a very high level of stability in the course of this year, with fluctuations being contained within a relatively narrow range. The annual rate of increase in the Harmonised Index of Consumer Prices (HICP) was 2.4% in July 2000. Recent consumer price developments in the euro area have been very much influenced by the strong rise in oil prices and the depreciation of the exchange rate of the euro. 1  BIS Review 74/2000  While monetary policy cannot address short-term developments in prices, it is imperative for monetary policy that medium-term upward pressure on prices be contained. The risk that the current pressure on the HICP might spill over onto costs and prices determined in the domestic economy must be taken seriously. This holds true in particular in the context of the favourable prospects for economic growth. The Governing Council reacted to this picture by raising the main ECB interest rates at its meeting on 31 August 2000.

Today, on the basis of a Progress Report, we have reviewed the advances of the banking industry against the objectives set by the Eurosystem and we have identified the outstanding issues that need quickly to be addressed. A press release on this topic will be issued later on today. The Progress Report will be available on the ECB’s website shortly. 3  BIS Review 74/2000
This module needs to allow for a substantial sectoral breakdown so as to be able to reflect both the risks assumed by banks and the opportunities opening up in this process. In this context, I would like to mention a problem facing us all: the lack of reliable information. The fact that this aspect is brought up repeatedly is a reflection of its transcendence. It is not a coincidence that there are various references in the conference agenda to initiatives related to transparency and information on sustainability in general. The topics discussed today and yesterday have covered, for example, the Directive on non-financing reporting, the register of sustainable funds, the climate benchmarks and the European taxonomy. In this regard, we are assessing the reporting and data requirements needed to perform the analyses I just mentioned. We are also conducting a pilot programme for collecting data in collaboration with major credit institutions and we have the benefit of our Central Credit Register. We can attempt to exploit to the full the data already available to us, but we need to be aware that, without information, it is impossible to make further headway. We are also taking action in our role as portfolio manager. Central banks are important investors in the debt markets, both in respect of monetary policy and reserve management. In this area, we have included environmental responsibility and sustainability criteria in the reserves investment policy and we are progressively increasing our own holdings of green bonds.

Indeed, in contrast to what usually happens in legislative or transformative processes, the private sector has spearheaded many of the sustainability-related initiatives, such as the development of the green bonds market, arising in response to growing demand for responsible investment, regardless of supervisors. The cooperation of the private sector is also manifest in expert groups, which are helping authorities to define legislation and actions relating to this issue. Examples include, in the European arena, the EU High-level Group on Sustainable Finance, set up by the Commission in 2018 to advise on sustainability matters; turning to the Financial Stability Board (FSB), the creation of the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 is particularly noteworthy. Indeed, regulators and supervisors have also recently stepped up their involvement. And they have done so significantly. This conference organised by the CNMV is a good example of this. As you are all aware, the Climate Change and Energy Transition Law is in the process of being approved by parliament; this Law envisages that a huge volume of investment (around € billion over the coming decade) will be needed to successfully undertake the energy transition. The banking sector's participation will be essential to mobilise such a volume of investment which, in turn, represents a clear incentive for credit institutions to become involved in this challenge.