samchain/econo-pairs-v1 huggingface dataset:
A counter-cyclical fiscal policy also helped reinforce the credibility of the choice of monetary policy regime, since unemployment in this period was lower than would otherwise have been the case. 1  BIS Review 67/2000  •  In December 1992, the fixed exchange rate system had to be abandoned following a sustained period of unrest and extensive speculation in European exchange markets. After this the krone remained stable for several years without any significant changes to Norges Bank’s policy response pattern. The stability of the krone during this period was largely due to the Norwegian economy entering a period of balanced growth. Fiscal policy was well suited to economic developments, while wage inflation was moderate and oil prices were relatively stable. The monetary policy instruments merely accompanied these developments. Chart 2 Daily variation in the krone exchange rate  NOK per ECU/EUR  Daily variation in the krone exchange rates against ECU/EUR. Percent  •  From late 1996 the krone became less stable: the value of the krone fluctuated substantially, despite more active use of monetary policy instruments to dampen the fluctuations. This period saw high levels of economic activity in Norway, coupled with marked cost inflation. This coincided with considerable fluctuations in oil revenues and turbulence in international financial markets, which had a contagion effect on the krone. Developments since the end of 1996 indicate that the exchange rate is no longer ideally suited as an operational short-term objective for monetary policy.

The accumulation of capital in the Petroleum Fund serves as a channel for distributing oil revenues among generations and contributes to stable government finances in the long term. The larger the Petroleum Fund is, the less dependent we will be on petroleum revenues in the future. The Petroleum Fund shall also serve as a buffer against short-term fluctuations in oil revenues. As large portions of the revenues from oil activities accrue to the state, fluctuations in oil prices and oil revenues will primarily result in changes in allocations to the Petroleum Fund. Since all of the capital in the Petroleum Fund is invested abroad, such changes will in principle not influence the level of activity in the economy. This makes the Norwegian economy more robust to fluctuations in oil prices and thus less dependent on oil, even in the short run. 11  BIS Review 67/2000  Chart 11 Petroleum activity in 2000  We may say that oil revenues enter the Norwegian economy through an external and internal circular flow. The distinction between the external and internal circular flow is important for exchange rate stability. This means, among other things, that short-term changes in oil prices shall not influence the orientation of economic policy. If the distinction between the two circular flows were to break down, and the use of oil revenues were to fluctuate more in step with oil prices, we would have an unstable economy, and hence an unstable exchange rate.
The FOMC decided at its November 2010 meeting to expand the amount of domestic securities held in the System Open Market Account (SOMA) portfolio by $ billion by purchasing longer-term Treasury securities through the end of June 2011. Those purchases were in addition to ones already being made to reinvest the principal payments from SOMA holdings of agency debt and agency mortgage-backed securities (MBS) into longer-term Treasury securities. The purchase program was implemented by the Open Market Trading Desk (Desk) at the Federal Reserve Bank of New York. To be sure, it was a busy period for the Desk. Over the life of the program, we conducted 140 outright purchase operations to meet the directive set out by the FOMC. That meant that we were active on nearly every day possible over that period. In those operations, the Desk bought $ billion of Treasury securities, which included the $ billion expansion of the portfolio and $ billion of reinvestments. Our operations ranged in size from just over $ billion to around $ billion, with an average size of about $ billion. Those operations brought the amount of domestic assets held in the SOMA portfolio to $ trillion. The current directive from the FOMC instructs the Desk to continue to reinvest the principal payments on all domestic assets held in SOMA into Treasury securities. Thus, the amount of assets held in the SOMA will remain at that level until the FOMC decides to change the directive. Of course, the portfolio at these levels is unusually large.

While there has been considerable volatility in Treasury yields over the past several weeks, we attribute those movements primarily to incoming economic data and to broader risk events. However, we will continue to watch the markets and assess their adjustment to the end of the purchase program. Future evolution of the SOMA portfolio While I am sure you are happy to hear more about our actions to date, I realize that you may be even more interested in the evolution of the SOMA portfolio going forward. Just to be clear, I will not be saying anything about the likelihood of prospective policy actions beyond what has been conveyed in FOMC communications. However, I would like to make a few points about the portfolio under those prospective actions. As noted earlier, the current directive from the FOMC is to reinvest principal payments on the securities we hold in order to maintain the level of domestic assets in the SOMA portfolio. This approach can be interpreted as keeping monetary policy on hold. Indeed, one can generally think of the stance of monetary policy in terms of two tools – the level of the federal funds rate, and the amount and type of assets held on the Federal Reserve’s balance sheet. The FOMC has decided to keep both of these tools basically unchanged for now. Given the considerable amount of uncertainty about the course of the economy, market participants have observed that the next policy action by the FOMC could be in either direction.
For example, Alberto Cavallo has shown how Amazon and other online retailers have fundamentally changed price dynamics for consumer goods, with prices changing more rapidly and more affected by exchange rate changes.2 In today’s globalized and rapidly changing economy, standard reduced-form Phillips curve models that focus primarily on the demand-driven movements in inflation are less relevant. Other factors besides the state of the business cycle dominate price movements for a wide variety of goods. CSI to the Rescue In theory, one could try to modify the model to account of these factors, but for the present purpose, a more straightforward approach is to focus on prices for categories of consumer spending that are less susceptible to supply shocks, international trade, and changing market structure. This approach follows in the tradition of “core” measures of inflation that remove the categories that are particularly prone to supply shocks.3 A number of related measures have been developed along these lines, including work at both the New York and San Francisco Feds.4 In my remarks I will use the “Cyclically Sensitive Inflation” measure, or CSI, developed by Jim Stock and Mark Watson.5 By design, CSI includes the categories that are cyclically sensitive and less prone to measurement error or other non-cyclical drivers. In practice, this measure more heavily weights services with well-measured market-based prices and significantly down-weights goods. Figure 1 compares the four-quarter moving averages of CSI to that of core PCE price inflation, with the shaded regions indicating NBER-dated recessions.

And to prepare for Basel II, we will be asking our banks to begin reporting their capital under the new standardized approach from the third quarter of this year onwards, in parallel with the usual calculation under Basel I. This, I think, will be an important exercise for our banks before we formally begin Basel II at the end of next year. This year will also see financial firms in Thailand adopting the IAS39 accounting rules for the valuation of collaterals, which will affect their loan provisioning. We will see the Bank of Thailand implementing consolidated supervision, and we will see the whole financial system going through a formal FSAP assessment with the IMF. All these will happen this year, and all these will be positive developments for our financial system. So, 2007 should be another active and positive year for the global markets and for Thailand. But given the uncertainties that still loom in the global markets, I think maybe we should move to meet the optimism and the challenge of this year cautiously. But this is the words coming from a central bank, which probably and usually sounds too careful. So, I guess now you may want to hear something different from Michael Spencer and his team. So, on this note, let me end my brief remarks and wish you all a successful conference. Again I want to thank Deutsche Bank for the invitation, and a happy new year to all of you. Thank you. 2  BIS Review 11/2007
8 https://bankunderground.co.uk/2019/04/30/the-great-war-and-the-bank-of-england-as-market-maker-of-last-resort/ 9 https://libertystreeteconomics.newyorkfed.org/2020/08/market-function-purchases-by-the-federal-reserve.html 10 Ie the ability to transact in reasonable size at or close to mid-market prices prevailing prior to the trade – as discussed, eg in https://www.bankofengland.co.uk/financial-stability-paper/2015/the-resilience-of-financial-market-liquidity 5 6  5  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  5  But it wasn’t until 2007, in the foothills of the Global Financial Crisis (GFC), that Willem Buiter and Anne Sibert coined the phrase now widely used for this activity: ‘Market Maker of Last Resort’ (MMLR).11 Buiter and Sibert believed that central banks, acting as MMLR, should be ready to tackle dysfunction in securities markets relevant to monetary or financial stability, by making two way prices to buy and sell those securities, or lending against them. Risk would temporarily be transferred off dealers’ balance sheets, freeing up capacity to return market liquidity to more normal levels.12 In all other respects, they recommended following Bagehot’s principles: ie standing ready to operate at scale, but only at prices, rates and collateral haircuts that would protect public money and avoid moral hazard. Such terms, they believed, would also ensure that the central bank’s financial exposures naturally unwound as market conditions normalised, with purchased assets being sold back to the market, or repo exposures maturing. Many historical central bank operations in securities markets, including some undertaken in the 2008-9 crisis, involved one-way purchases, and hence did not have this self-liquidating feature.

(2) Red diamonds correspond to forecasts in the central scenario of June 2023 MP Report for each year in 2023-2025 period. (3) For oil: WTI-Brent average price per barrel. Sources: Central Bank of Chile, Bloomberg, and FAO. 18  Figure 20  MPR corridor (*)  (quarterly average, percent)  25.II  25.I  24.IV  24.III  24.II  24.I  23.IV  23.III  23.II  23.I  22.IV  22.III  22.II  22.I  21.IV  21.III  21.I  21.II  Jun.23 corridor FTS EES Mar.23 corridor MPR  13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0  (*) The corridor is built with the methodology described in box V.1 in March 2020 MP Report and box V.3 in March 2022 MP Report. For details, see methodological note in figure II.10, June 2023 MP Report. Source: Central Bank of Chile. 19
Our baseline scenario assumes that the course of the pandemic in the coming months will require similar restrictions to those in the early months of the year, but that the gradual administration of vaccinations will enable these restrictions to be lifted during the second half of the year. One key aspect is the forecast path of tourism. Under the baseline scenario, it is assumed that the incompleteness of the vaccination process in the coming quarters will give rise to tourist flows that do not reach a high degree of normalisation until 2022. As to the damage to the productive system,6 until last February the number of active firms had fallen by 3.6% relative to February 2020. This figure was lower than that of the first two years of the previous crisis – 2008 and 2009 – and comparable to 2012, despite the fact that the decline in activity was much greater last year. Behind this reduction is the fall in business start-ups, but not a rise in business deaths, which might be attributable to the support measures adopted, including the moratoria on insolvency procedures. In any event, the future is uncertain, in particular once this support should disappear. The baseline scenario of the projections assumes only moderate destruction of the productive system. There are likewise doubts about the behaviour of household saving,7 which increased significantly last year and has built up largely in bank deposits.

Generally, it is appropriate to increase the contributivity of the system and its transparency, ensuring a level of sufficiency for those households with more limited resources. Also, establishing automatic adjustment mechanisms would help stabilise the system, adapting it to demographic and economic changes. Indeed, several EU countries (such as Germany, Sweden and Italy) have already established a link between the level of benefits or retirement age and life expectancy. Combating climate change and smoothing the transition to a more sustainable economy are another of the fundamental challenges we face. Fiscal policy should take the lead in attaining objectives in this field, both to deter the most environmentally harmful activities, through an internationally harmonised tax system, and to foment the public and private investment needed to develop cleaner technologies and alleviate the social costs of the transition. As to inequality, we began the current crisis with a higher level than was the case at the end of the previous upturn, and everything suggests that this crisis will entail a further increase. The employment protection and income support measures approved should contribute to lessening the vulnerability of the households most affected. Also, many of the reforms intended to improve productivity or lower unemployment and job insecurity are vital for  7  reducing inequalities. The minimum life income scheme could, in coordination with regional government arrangements, contribute to alleviating extreme poverty. In this connection it will be important, as provided for in the scheme’s founding legislation, to assess its application on an ongoing basis.
The country has to ensure that the agency entrusted with this task has sufficient power to act. I can still remember that in Thailand long ago, when government successions often did not come from elections but through military actions, it was very common for commercial banks to have army generals sitting on their boards. Banking supervision under such an environment was a challenge. But the biggest challenge is what to do when banks suffer such losses that they are unable to continue. This happened when Thailand went into the crisis in 1997. We closed down two-thirds of our finance companies. As for the commercial banks, we had 15 local banks then. Six banks had to be taken over by the authority. The private shareholders were forced to take full losses, and new capital provided by the authority. Management was totally revamped. We have merged four of these banks into the others, and have carved out non-performing loans to a national asset management company. Two government-owned banks are now ready to be privatized to the general public. The banks that remained were forced to recapitalize. Three of them were unable to find domestic capital, and decided to invite foreign strategic partners. We allowed the foreign banks to own majority shares and control management. Now for the bad news! Despite your effort in trying to strengthen your ship, it may not always be smooth sailing. I wish to point out two dangers that may crop up.

When we had to change to the flexible exchange regime, the exchange rate depreciated to a low point of less than 50% of its pre-crisis value before backing up to above 60. The exchange losses that occurred was, among other things, one of the major factors causing the level of non-performing loans to go up to the peak of 45%. This was almost one out of every two dollars lent out. What stress test can really prepare us for such an event? The second is to have the right infrastructure for the domestic financial markets. This topic includes many things like (a)  having the proper market rules,  (b)  having the legal framework that facilitates the enforcement of creditors’ rights,  (c)  having the laws and procedures to deal with bankruptcy,  (d)  having proper accounting and auditing standards as well as a reliable system of credit information on individual borrowers. BIS Review 52/2002  1  I can still recall that during the 1997 crisis, the inter bank market in Thailand ceased up for fear of counter party failure. But the problem also extended to the system of commercial trade credit between ordinary companies, the sellers and buyers of goods. Today, five years after the event, the system of trade credit still has not regained its full recovery. This problem can be mitigated with the function of credit bureau that reports regularly on payment behavior of commercial firms. Third is to ensure that there exists proper supervision of financial institutions.
And, by providing a highly resilient, alternative payment rail it could reinforce the overall resilience of the UK payments system. These motivations are explored more fully in the paper we have published today. The model for a digital pound Our assessment, therefore is that on current trends a digital pound would have benefits and is likely to be needed. However, the Taskforce concluded, that we are not at present at a point at which a firm decision could be taken to implement the digital pound. Further work, especially detailed technical exploration and development is necessary to assess the feasibility and cost of what would be a very major public, financial infrastructure project. We expect this intensive exploration and technical development phase to take around three years. It will produce a technical blueprint for the digital pound. The work will not delay but rather shorten the lead time to actual launch should a firm decision be taken in the future to implement the digital pound so that a digital pound could be introduced in the second half of the decade. And during this next phase, we will be able to see more evidence of how the current trends and changes in payments and money are playing out which will help to inform a future decision. In order to proceed to the next phase we need clarity about the model of the digital pound we wish to develop. We have today set out that model in detail for consultation.

To achieve this, we must develop synergies between the existing initiatives: Capital Markets Union, the Juncker Plan and Banking Union. But we must also go still further, with two clear goals. Firstly, diversification of financing to meet businesses’ needs. Equity financing, rather than debt financing, is better adapted to risk taking and therefore to innovation. But Europe currently lags very far behind in this area: equity financing of businesses is less than half that in the United States (67% of GDP in the euro area compared with 125% in the United States). Secondly: increased resilience of the euro area thanks to integrated capital markets. As Jens Weidmann and I wrote last year, this manner of sharing private risks is the best way to counter asymmetric shocks within a monetary union. In the United States for example, private equity is capable of absorbing around 40% of an economic shock specific to a State. 3. The new international environment makes action more urgent. Some of those around us seem to no longer believe in the benefits of the European Union. The new US president has stated this very clearly, and the British chose to leave the union. These changes bring us face to face with our responsibilities: we can no longer afford to wait and see. But how should we respond? Not by less Europe. That would be a mistake if we wish to have collective control over our destiny in this new world.
And only three years ago the Bank’s Court held its annual out-of-London meeting in Liverpool’s imposing Town Hall. I am particularly pleased to launch this, the third edition of the Merseyside Economic Review. The Partnership had its origins in a Daily Post campaign over a decade ago (‘who speaks for Merseyside?’). It broke new ground then and it has been breaking new ground ever since. The Economic Review was the first of its kind for any UK City Region. And the Partnership’s report on ‘the Gender Agenda: Women in the Merseyside economy’ is another first. The value of the Partnership’s approach is clear. Economic regeneration is a highly complex long term business which has to bring together many different bodies and initiatives – at local, regional, national, European and even international levels. It’s only too easy to lose sight of the big picture. But successful partnership rests on shared goals and clear expectations. This Review charts the way: it sets out in clear and simple terms what the Partnership is seeking to achieve and it assesses progress against measurable objectives. It has the credibility that comes from being grounded in serious analysis of the issues confronting Merseyside. And it has benefited from the advice of an independent panel of distinguished experts. There is no doubt that the performance of monetary policy has benefited greatly from setting clear objectives and measuring progress in a transparent and open way.

And business needs a climate of stability if it is to commit to the investment that’s needed to revitalise an area. We know that it is entirely possible to transform old urban areas – there are plenty of inspiring examples from London Docklands to Berlin and Baltimore, and if Liverpudlians ever doubted it, nowadays they need go no further than Albert Dock. But it takes long term commitment. The key findings in today’s Merseyside Economic Review provide convincing evidence that Liverpool has turned the corner– with faster growth in the core city than any other English city and jobs growth more than double the national average. Manufacturing remains important and there is still a strong automotive supply industry, which is high tech these days, but the real growth sectors are tourism, leisure and modern services. Increasingly, for those who acquire the right skills, the jobs are there – a picture that fits with a national labour market where unemployment is now as low as it has been in three decades. How confident can you be that we will continue to deliver the stability that is our contribution to your future success? Our latest Inflation Report, published last week, paints a favourable picture for the next few years, with continuing steady growth and low inflation. If you trust the MPC to do its job, you might feel reasonably safe in basing your decisions on that outlook. But those of us on the Committee can’t afford to take it for granted.