samchain/econo-pairs-v1 huggingface dataset:
Figure 16 shows the development of unemployment in a number of countries that have been hit by major adjustments on the housing market. Many factors have contributed to these adjustments, but access to cheap loans during the upturn is one of  6  According to the Swedish Public Employment Service, there are four groups who have a relatively vulnerable position on the labour market and who find it difficult to get a new job if they become unemployed: those born outside Europe, people with less than upper-secondary school education, people in the age group 55–64 and people with a physical disability which reduces their capacity to work. BIS central bankers’ speeches  5  them. There are thus risks associated with setting the repo rate too low and this applies not least to unemployment, although perhaps beyond the rather short economic horizon that normally attracts almost all the attention. An appropriate balance I have now provided some background to some aspects of the difficult balancing act that we must perform when determining monetary policy. Let me conclude by illustrating this with reference to our latest monetary policy decision and our latest forecast for the repo rate. Here we have achieved what I believe is an appropriate balance. The weaker economic prospects and the low inflationary pressures justify keeping the repo rate low. This will help inflation to rise towards the target of 2 per cent and to strengthen economic activity (see Figure 17).

As the problems have worsened the recovery that began after the financial crisis in 2008 has ground to a halt, and our assessment in the Monetary Policy Report published in October is that GDP will actually fall in the euro area in 2012. …which is having a major impact on the Swedish economy Sweden is what we usually call a small, open economy. We are highly affected by developments abroad. This high dependence on economic activity abroad has led to considerable fluctuations in production in recent years. The fall in GDP in 2009 was the largest since World War II, but growth in 2010 was the highest for 40 years. The recent weak development of economic activity in the euro area has once again dampened growth prospects in Sweden. An important explanation of why the Swedish economy is affected so much by what happens abroad is that we are highly dependent on the demand for the goods and services that we export to other countries. The euro area is our largest export market and problems in the euro area therefore have a major impact on the demand for Swedish exports. One way for Swedish export companies to reduce this impact is to turn to new markets instead, but this is a very slow process (see Figure 7). The euro area will continue to be easily the largest export market for Sweden for the foreseeable future. Uncertainty abroad affects households and companies in Sweden.
Peter Praet: Have unconventional policies overstretched central bank independence? Challenges for accountability and transparency in the wake of the crisis Keynote address by Mr Peter Praet, Member of the Executive Board of the European Central Bank, at the "Symposium on Building the Financial System of the 21st Century: An Agenda for Europe and the United States", Frankfurt am Main, 29 March 2017. * * * I would like to thank Claus Brand for his contribution to this speech. Evolution in consensus on the role of central banks and central bank independence In the course of monetary history, consensus on the role of monetary policy and on the appropriate degree of independence of the central bank has fluctuated considerably. During major crises, the pendulum has tended to swing from one extreme to the other. In the heyday of the gold standard, i.e. the decades preceding World War I, there was a commonly accepted understanding of how to preserve monetary and financial stability. The gold standard provided what we call a “nominal anchor”. It effectively ensured central bank independence from other public policies by subjecting monetary policy to an automatic rule.1 At the same time, there was a clear understanding of the role of central banks as a lender of last resort. Under that regime, central banks enjoyed sufficient discretion to take effective action in the event of banking panics.

Adherence to the oft-quoted Bagehot principle (“lend freely at a high rate against good collateral” to solvent, but illiquid institutions2) ensured that lender of last resort activities did not threaten monetary stability. The pendulum began to swing away from this pre-war consensus when World War I prompted many countries to subordinate monetary policy to financing war and to suspend the gold standard. Countries returning to the gold standard after World War I, however, turned to overly rigid management of monetary affairs. Lacking the necessary discretion, following the Wall Street crash and the global recession in 1929, and the subsequent banking crisis, monetary policy prompted a precipitous collapse in money and prices.3 This spawned the greatest loss in jobs and output on record in what came to be remembered as the Great Depression. In a fateful irony of monetary history, the role of monetary policy in precipitating these calamitous events did not usher in monetary reform. On the contrary, notions hardened that monetary policy was powerless and that macroeconomic stability needed to be safeguarded through other policies.4 This shift in emphasis culminated in fiscal dominance, which contributed to the monetary mismanagement of the 1960s and 70s, paving the way for the “Great Inflation”. Only a few countries that preserved central bank independence, such as Germany, were able to maintain low inflation rates throughout these years. The Great Inflation was eventually overcome as monetary policy once again gained centre stage and was recognised as a powerful factor in macroeconomic stability.
Some households will have seen these benefits through higher employment, others through lower debt payments, others still through higher wealth. Even if people observed and understood all of these channels, their lived experience would have been quite different. In practice, we know people’s understanding of these channels is partial and imperfect. Some channels are hard to observe or take time to take effect, such as the quantitatively important effect of monetary policy in boosting jobs and hence household labour income. It will have been difficult for households to tie the effects of looser monetary policy to their improved job prospects, given the long lags in transmission. People’s subjective sense of well-being might also be influenced by more than their percentage gains. How people’s gains, in money terms, compare with others’ monetary gains might also matter. In experimental and real-world settings, these relativities often matter to people’s sense of fairness and hence well-being. 30  With that in mind, we now turn to a fully-fledged welfare analysis of the impact of monetary policy. Assessing the Welfare Impact of Monetary Policy  Assessing the impact of monetary policy on the welfare of different cohorts is interesting for several reasons. First, it is the sum of individuals’ subjective well-being – that is, social welfare – that ought ultimately to matter for policymakers, even though policymakers’ legal mandates are typically cast in terms of a set of more objective macro-economic measures, such as inflation and employment.

These are likely to include the cash flow effects of interest rate changes on interest payments and receipts and the effects of asset prices on wealth portfolios. For example, when asked about whether lower interest rates have benefitted them, around a third of the UK public – and more than half of those aged over 50 – suggest not. 17  Within that group, a large majority –  around 80% – focus only on the negative effects of lower rates on their savings income. This is only one of the channels through which monetary policy works, albeit the most immediate and observable. It is far harder for the public to take account of the other channels, many of them neither immediate nor observable, through which a relaxation of monetary policy might benefit them. This includes the effects of looser policy in boosting wages and jobs. Not taking account of these channels can give a distorted lens on the impact of policy on the economy at large, on inequality and on individuals’ personal finances. To gauge fully the distributional impact of monetary policy, then, we need to capture as many as possible of its transmission channels, direct and indirect, immediate and slower-moving. It is only by considering all of these channels in combination that we can then properly evaluate the impact of monetary policy on the income, wealth and welfare of people and the distribution of these effects. It is to those we now turn.
Responsible investment is an integral part of the investment strategy and includes the exclusion of companies on an ethical basis. In 2016, the Ministry of Finance, at the request of the Storting, introduced two new criteria for ethics-based exclusions: a climate criterion and a coal criterion. Norges Bank has conducted extensive research to collect data and perform analyses to identify the companies that fall under the coal criterion. Based on the results, the Executive Board decided to exclude 69 companies and place 13 companies under observation in 2016. On the advice of the Council on Ethics, the Board also decided to exclude a further eight companies and place one company under observation, while the exclusion of one company was revoked. The exchange of information and division of responsibilities between Norges Bank and the Council on 1/2  BIS central bankers' speeches  Ethics functions smoothly. At the end of 2016, Norges Bank submitted a recommendation to the Ministry of Finance to increase the share of equities in the GPFG. Historically, equities have generated a higher return than bonds, but the return has also been more volatile. A lower return on bonds is the price we pay to dampen fluctuations in the fund’s value. In recent years, bonds have become a more efficient, but also more costly, hedge against security market volatility. Both factors suggest that the bond allocation should be somewhat lower. In addition, Norway’s petroleum wealth as a whole has become more diversified over the past ten years.

In 2016, the Executive Board’s capacity was strengthened by the appointment of a second deputy governor and an increase in the number of board members. At the end of 2016, the cumulative value of transfers to the GPFG was approximately equal to the cumulative return on the fund, reflecting the fund’s solid performance over time. Last year, the return on the GPFG was 6.9 percent.1 Over the period since inception, the return has averaged 5.7 percent. Adjusting for inflation and management costs, this gives an average real return of 3.8 percent. Developments in international financial markets and the growth outlook for the global economy suggest that the expected real return ahead will be somewhat lower than has been the case in recent years. The GPFG closely tracks the benchmark index; it is invested across a broad range of countries and markets. This strategy has so far generated a solid return within the defined risk limits. Restrictions imposed on the fund’s scope for investment, or instructions that disregard the tradeoff between return and risk, will limit the fund’s potential to achieve solid performance over time. In the execution of our management assignment, it is important that Norges Bank’s role is that of financial investor. It is crucial to the GPFG’s reputation in investee countries that the fund is not perceived as a political instrument. Norges Bank aims to be at the forefront of global efforts in the area of responsible investment.
It will be critically important that these decisions put the Commonwealth on a sustainable fiscal path going forward. As in other examples, such as New York City in the 1970s, the fiscal adjustment will be 2/3  BIS central bankers' speeches  painful, and many important decisions will undoubtedly be unpopular. While the pain has been— and will continue to be—widely shared, it is also critical to seek ways to ensure that the benefits from the restoration of growth are shared broadly. How exactly to make this work is an open question that I am certain the oversight board and its stakeholders will consider carefully over the coming months. The New York Fed will continue to help in the best ways we can—by providing independent research and analysis, and by leveraging our convening authority to bring together stakeholders to share expertise, explore opportunities, and provide information to those who need it most. We recently held two events on the Island—one for small business owners impacted by the storm and another for credit unions. We plan to do more in the months and years ahead, and I look forward to gaining a better understanding of conditions on the ground and how we can help when I travel to Puerto Rico and the U.S. Virgin Islands next month. Now, I’d like to turn it over to Jason Bram, who will talk more about what we are starting to see in terms of the economic impact of the storms.

The outcome was almost one percentage point lower, that is, one and a half percentage points below the target. 4 That there may be a good deal of truth in this interpretation is supported by a number of critical newspaper articles published around that time, see, for example, “Nya direktörer men samma gamla riksbank” [New directors but same old Riksbank], Aftonbladet (2013), 22 May and “Ta tillbaka makten över Riksbanken” [Take back control over the Riksbank], Dagens Nyheter (2014), 15 June. 2 [17]  The important lesson to learn here is, as I see it, that it is absolutely key to show that you always do have your eye on the ball and do not let other factors come into the picture in a way that risks economic actors starting to doubt that this is the case. I have been reminded of this lesson on a number of occasions lately, most recently at the monetary policy meeting in October. The picture we painted at that time of monetary policy going forward, in which we predicted that the repo rate will be raised very slowly to take it back into positive territory in the longer term, was one that I largely considered to be well-balanced. However, I expressed considerable doubt over the next increase in the repo rate happening as early as around the turn of the year, most probably at our next meeting in December, as implied by our forecast for the repo rate.
Equity does a much better job than debt of sharing risk between borrowers and lenders as repayment terms adjust automatically with servicing capacity. Equity is also better able to support the financing of long-term investment projects because it is perpetual. So a world without equity is likely to be one with poorer risk-sharing and weaker long-term investment. To illustrate these costs, consider the portfolio behaviour of pension funds around the financial crisis. At this time, global equity prices fell sharply and risk appetites evaporated. These are precisely the circumstances in which pension funds, as long-term investors, could play a stabilising, counter-cyclical role. In particular, those pension funds with stronger balance sheets might be expected to bear greater risk when its price is cheap – for example, by buying equities. In fact, the evidence suggests quite the opposite happened. We have looked at the portfolio behaviour of over 2000 corporate pension funds between 2006 and 2012, splitting them into those with “strongest” and “weakest” balance sheets. Strongest is defined here by the net funding position (ratio of assets to liabilities) of the pension fund. Chart 8 shows the changes in equity portfolio allocations of the strongest and weakest pension funds, together with the FTSE All-Share index, over that period. 9 Both the strongest and the weakest pension funds began the period with a similar equity allocation. As equity prices started to fall in 2008, however, the allocations of strongest and weakest funds diverged sharply.

Economic growth has been financed, to a significant extent, by foreign resources, in the form of foreign-currency borrowing by the public sector, financial sector, businesses and households. A substantial share of the bank’s liabilities and of the loan portfolio is in foreign currency. Foreign-currency lending has been dominant and preferable by parties. This was due to a combination of factors, such as positive exchange rate trend, lower interest rates and good opportunities of the banking sector to fund these loans in the  BIS central bankers’ speeches  1  wholesale markets. Foreign-currency lending to the private sector and households were used to a considerable extent for consumption. Foreign investments in the tradable goods sectors, which would contribute positively to trade balance, were less than those in the non-tradable goods sectors. This is the case of Albania, Bosnia-Herzegovina or Serbia. It is estimated that in terms of the stock of foreign investments, at end-2008, the share of investments in the tradable goods sector ranged from 15% in Albania to 35% in Serbia. Therefore, in the pre-crisis period, some of the countries posted steady and even upward trade balance deficits. Second, notwithstanding the efforts to develop the financial market, the banking sector continued to dominate the financial system of the countries in our region. This is a phenomenon of developing economies, which shows the great dependence of economic development on the banking sector condition. The banking sector in some countries in the region is mostly owned by European banking groups.
These changes likely supported economic growth and the creation of employment relative to what would have been realized in the absence of the program. 4 Second, the LSAP2 program appears to have raised inflation expectations from unusually low levels and reduced the threat of deflation. The downside risks to inflation had become quite threatening by last summer. Breakeven inflation rates had moved to levels that were well below those consistent with the FOMC’s mandate, even for forward measures covering periods beginning several years ahead. In addition, the pricing of deflation risk, as computed by looking at Treasury inflation-protected securities with different amounts of accrued inflation, reflecting fairly substantial odds of deflation over the next several years. 5 Since that  1  Estimates of the contribution of additional risk coming from the increased size of the portfolio range from 60 percent to 80 percent, while estimates of the impact of its longer duration range from 20 percent to 40 percent. 2  See, for example, Chairman Ben S. Bernanke (2010), “The Economic Outlook and Monetary Policy”, remarks at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 27. 3  One would expect market prices to incorporate nearly all of the effects of the programs in advance rather than during the actual implementation of the program. Thus, the period before the November implementation is the most relevant period for assessing the program’s effects.

1 Transferring this additional duration risk to the Federal Reserve’s portfolio, and hence out of the portfolios of market participants, was one channel through which the asset purchase program was intended to have its effect on financial conditions. This “portfolio balance” channel has been discussed by Chairman Bernanke on several occasions. 2 This view associates the amount of policy stimulus with the stock of assets, or more precisely with the amount of duration risk, that the Federal Reserve takes onto its balance sheet. Policy achievements of LSAP2 The purpose of the asset purchase program was to help the Federal Reserve achieve the economic objectives of full employment and stable prices that it was given by Congress. I believe that the program delivered what could have been expected from it. In particular, let me highlight its success along two dimensions. First, the LSAP2 program made broad financial conditions more accommodative. This conclusion can be drawn from the behavior of financial markets from late August 2010 to the program’s implementation date in November 2010 – a period during which market participants moved from seeing such a program as a remote possibility to expecting it with near certainty. 3 Asset price movements over this period included a decline in real interest rates, a narrowing of risks spreads, an increase in equity prices, and a decline in the dollar – exactly the pattern that one would expect to be generated from additional monetary policy accommodation.
This concentration creates a higher degree of dependency on this small group of firms. The trend towards the globalisation of clearing has benefits and risks. On the one hand, there is greater scope for netting that allows for collateral savings, the lower cost of direct access and using CCPs, and an increase in transparency for both regulators and CCPs. On the other hand, there is a potential for systemic risks as CCPs may become too big to fail. Also, market power may push up clearing fees and restrict entry. This could create disincentives for central clearing and could undermine the efficiency gains reaped in the first place by eroding the pricing power of global dealers. There could also be cross-border regulatory frictions in the case of multiple (and inconsistent) national regulations, and last but not least the cross-border liquidity provision in several currencies becomes more complex. This leads me to the last and maybe most challenging “unknown”. Given CCPs’ role as financial market utilities that has been reinforced by mandatory clearing requirements, and their increasing systemic relevance, would the world be a safer place, if CCPs had been established as non-for-profit institutions? My tentative answer is no. I have outlined the importance of good risk management in CCPs, and the ability to adapt to a changing market environment in terms of counterparties, products, and technologies. I am convinced that this will be better done in a market environment.

But this certainly requires strong supervision, effective cooperative oversight arrangements, and setting up the right incentive structure so that CCPs don’t lose sight of public interest, starting with the interest of their indirect members. Let me conclude. Central clearing will make the global financial system safer. However, it also has the potential to redistribute risk. Its overall systemic effect will thus depend on the incentives for risk-taking and central clearing that accompany risk redistribution. Hence the need for the official sector to provide the right incentive framework ex-ante, produce data that can help understand the distribution of risk, and tightly supervise CCPs in a spirit of cooperation across jurisdictions. Thank you for your attention. BIS central bankers’ speeches  5