samchain/econo-pairs-v1 huggingface dataset:
Norges Bank has been given an operational target for monetary policy, which means that monetary policy instruments shall be used with a view to maintaining low and stable inflation. The inflation target is set at 2½ per cent. Low and stable inflation is probably the best contribution monetary policy can 9 make to financial stability. This is also supported by empirical studies. However, there have been episodes where bubbles have accumulated in the form of sharp increases in asset prices in the property and financial markets while inflation has been low. Developments in Japan in the 1980s and in the US in the 1990s may be examples of this. When the bubbles burst, the result may be an economic downturn. Thus, developments in the financial and property markets may also fuel more unstable inflation. In principle, it might be appropriate to use the interest rate to counter this. In practice, however, it is difficult to assess whether developments in prices for property and financial assets are sustainable. When Norges Bank concludes that the key rate should be changed, the change will in most cases be made gradually. If special emphasis is placed on developments in financial or property markets when the key rate is changed, Norges Bank will provide an assessment of this. It is Norges Bank’s responsibility to present its view on the risks facing the financial system from a macroeconomic perspective. This is the purpose of Financial Stability, a report published twice a year. Second, the international financial infrastructure must be strengthened.

The securities and capital markets are another important source of capital for enterprises. During an upturn, many enterprises find that capital is "cheap", because the outlook for the future is regarded as very bright. There is a risk of over-investment. Optimism may rapidly give way to pessimism if investments fall short of expectations and negative news starts to spread. As a result, the risk that has accumulated during the upturn period may materialise. The financial sector may choose to interpret developments as a sign that the risk associated with new projects has also increased, with the result that this risk may be overestimated. A drying up of credit and capital may trigger or amplify a crisis. The costs of financial instability may be very substantial. Therefore, it is necessary to dampen financial cycles. The outlook for financial stability The outlook for the global economy is now weak. The terrorist attacks on the US on 11 September have increased uncertainty. We have witnessed a bubble in technology shares. From 1998, the price of technology shares rose substantially more than earnings, and since March 2000, there has been a sharp correction in prices. Life insurance companies and pension funds, both at home and abroad, have lost a substantial portion of their buffers due to the decline in share prices. Telecommunications companies have been through a phase marked by substantial borrowing. Credit rating companies have downgraded many telelcoms due to high debt levels in relation to future prospects. This has increased funding costs.
4 In the year 2002 the costs to society for managing cash were SEK 6.6 billion or 0.3 per cent of Sweden’s GDP. 5 This includes an estimated cost for the time the general public spends on fetching cash and managing it. Almost half of the costs to society arose within the banks and Svensk Kassaservice. Almost an equally great percentage arose in the retail trade, among transport companies and among the general public together, with costs distributed fairly evenly between the three groups. The Riksbank’s and the cash depots’ shares of the total costs to society were modest. The same study estimated the number of payments with cash made in one year at SEK 1.4 billion. This means that each cash payment made in 2002 led to a cost to society of on average SEK 4.6. The costs to society for cash payments in 2002 were estimated at SEK 1.9 billion, which corresponded to almost 0.1 percentage of GDP. That year, 589 million card payments were made. 6 This means that each card payment cost society an average of SEK 3.0. An average card payment is thus around 35 per cent cheaper than a cash payment. Around 2.3 billion transactions were made by card or cash 2002. We estimated that more than 70 per cent of these were paid in cash. There thus appear to be evident cost savings to be made through a reduction in the use of cash.

It is essential that the industry keeps considering the issues and expressing its ideas, but I am afraid that unrealistic expectations can only lead us to an agonised debate which could polarise views and even hinder the progress that we need to make now in the crucial and urgent work of implementing Basel II, and international accounting standards. As I mentioned earlier, these were the more prudent principles that I wanted to mention. But, as the 19th century English writer Charles Caleb Colton said, “there is nothing more imprudent than excessive prudence”. Therefore, let me add a further four principles that go more in a more progressive direction. Firstly, I think that the EU needs to be ambitious, and set an example. I am convinced, and have said in many of my recent interventions, that the EU can and should go further, deeper and faster than the wider international community in finding greater consistency, convergence and efficiency in banking supervision. We should especially take advantage of the opportunities presented by Basel II and the fact that we already have a body of single market legislation and a long history of supervisory cooperation on which to build. And if we can demonstrate that progress is possible among 25 countries that are still rather diverse, others will have more confidence to push ahead also. Secondly, we should recognise the legitimate concerns of the industry. More efficient supervision is a necessary - although not sufficient - condition for a more integrated market.
There was also some improvement in the female participation rate, from 35% to 38%. New challenges lie ahead A sense of satisfaction is, therefore, justified. Complacency, however, is not, for much remains to be done. And any further progress will have to be pursued in an external environment that has become even more challenging. In the first place, competition, mainly from Asia, has eliminated any residual advantage in our labour intensive industries, and represents a growing threat even in more capital and knowledge intensive activities. Another worrying development is the increasing prospect of a slowdown in global economic activity, reflected in the recent downward revisions to GDP growth forecasts by leading central banks and multilateral institutions. The full impact of the chain of events set off by the sub-prime mortgage crisis in the United States has yet to be felt, and risks being compounded by the mounting inflationary pressures in commodity markets, especially for oil and agricultural products, with as yet unpredictable consequences. Given the circumstances, while the adoption of the euro will undoubtedly enable Malta to face these challenges from a stronger position than if the convergence process had been slower, the euro alone will not be enough. Against this background, I would be failing in my duty if I did not express concern at the insufficient recognition by public opinion of the risks that the evolving external scenario poses for the Maltese economy and of the need to improve the country’s international competitiveness.

The forward guidance on the monetary policy stance has guaranteed the private sector that the monetary stimulus will remain present in the quarters ahead, promoting their orientation toward consumption and investments. Third, mitigation of appreciation pressures of the exchange rate, contributing to the improvement of the balance of trade exchanges and further growth of economic activity. Fourth, strengthening of financial stability. The financial environment with low interest has improved the financial balances of borrowers, through bolstering the aggregate demand, easing the cost of debt servicing, as well as encouraging the restructuring of businesses and of existing loans. Our assessments on the monetary policy impact show that its contribution to economic growth for 2015, 2016 and 2017 is around 0.2, 0.4 and 0.7 percentage point, respectively. In addition to the impact on growth rates, the positive contribution of the monetary policy has a cumulative impact on the level of economic activity. For 2017, the effect of the accommodative monetary policy on the level of economic activity in Albania is estimated at around 1.3 percentage points. Growth in aggregate demand has led to higher employment and improved capacity utilization rates, boosting medium-term inflationary pressures; however, inflation remains below our target. The persistence of low inflation has been at the focus of our analyses. The consensus of these analyses is that the monetary policy has been and remains effective for boosting aggregate demand and guaranteeing price stability in the medium and long term.
To understand the MPC’s potential response, businesses, households and market participants can draw on the Committee’s track record of managing the trade-off that emerged after the referendum, since exactly the same framework would apply. As then, the policy response would reflect the balance of the effects of a sharper Brexit on demand, supply and the exchange rate. Given the exceptional circumstances, the Committee would have to decide whether to extend the period over which inflation is returned to target in order to provide support to jobs and activity. Although the exact policy response cannot be predicted in advance, observers know from our track record that, in exceptional circumstances, we are both willing to tolerate some deviation of inflation from target for a limited period of time and that there are limits to that tolerance. Conclusion In recent years, the UK has faced a series of supply shocks and regime shifts that have created a series of difficult trade-offs for monetary policy. Brexit is the most recent and potentially the most important of these. It will soon be entering a critical phase. The paths that the economy, and monetary policy, could take from here are connected by the expectations of households, businesses and financial markets. Since the referendum was called, these have reacted at different speeds and to varying degrees to the prospects for the UK’s departure from the EU. Financial markets, particularly sterling, moved quickly and sharply.

Guidance, Contingencies and Brexit Speech given by Mark Carney, Governor of the Bank of England  Society of Professional Economists 24 May 2018  I am grateful to James Benford and Clare Macallan for their assistance in preparing these remarks. 1  All speeches are available online at www.bankofengland.co.uk/speeches  Introduction This evening I would like to discuss potential paths for monetary policy during the next, critical phase of the Brexit process. Note the conditionality of the phrase “potential paths.” The actual path for policy will depend on the outlook for the economy which in turn will depend very much on how the Brexit negotiations evolve. Monetary policy is always contingent on the economic outlook. This is broader than it being data dependent. In order to achieve the inflation target, monetary policy needs to adjust not only to news about current 1  conditions but also to any changes in likely future circumstances. While it may be the MPC that sets interest rates, it is ultimately the economy that determines them. Monetary policy will be most effective if agents can anticipate how policymakers will react to changing conditions. But the predictability of monetary policy can break down when there are large structural changes in: -  Supply capacity;  -  Equilibrium interest rates; or  -  Trading relationships. In such circumstances, forward guidance can help anchor expectations and improve the effectiveness of monetary policy.
FTD: Some euro area governments have said that Chancellor Merkel has frequently acted too slowly and has thus made the crisis even worse. Is that true? Trichet: Not in the least. I would see a discussion of this kind as being completely misplaced in the current situation. FTD: Do you fear that the euro area countries could fail to get the crisis under control? 2  BIS central bankers’ speeches  Trichet: No. The countries of Europe have always demonstrated that they pull together when the challenges are very high. My strong belief in the continued integration of Europe, as a key historical endeavour to ensure stability, prosperity and peace, has not been shaken in any respect by the crisis. FTD: Some governments want to beat the crisis by merging national government bonds to create eurobonds. Is this a good idea? Trichet: The Governing Council has looked at the various proposals and is not in favour of them at present. What counts now is that we make optimal use of the instruments at our disposal. This includes a quantum leap in the economic surveillance governance of euro area countries. In addition, the adjustment programmes for Greece, Ireland and Portugal must be implemented in a decisive manner. It also means that the European Financial Stability Facility (EFSF) should be used as flexibly and effectively as it possibly can be. FTD: The stress tests are very detailed in terms of various exposures of the tested banks (sovereign risk, housing risk, etc.)

And central bank facilities such as the Bank of England’s Term Funding Scheme have offered a cost effective source of funding to support additional lending to the real economy, providing insurance against adverse conditions in bank funding markets. These changes have led many banks to choose simply not to borrow in unsecured markets as the costs increase. Overall, this leaves Libor rates capturing (at best) only a tiny fraction of overall funding costs even in benign market conditions. As transactions become scarce during periods of stress, this reduces yet further. For example, during March and April Libor rates were impacted by liquidity mismatches in money market activity. Money Market Funds, that are important investors in unsecured bank funding markets, experienced large outflows, the so called ‘dash for cash’. This meant Libor linked borrowers were immediately exposed to a sharp increase in rates driven by these more esoteric liquidity factors in addition to any perceived changes in bank credit risk. When the banks that provide the data on which the Libor rates are based can’t reference actual transactions that they have undertaken, they are asked to provide Libor’s administrator with a submission based on transactions in other markets, where they are able. More commonly though, those data aren’t available either, so they have to rely on ‘expert judgement’ which is an estimate of the rates that the firm would expect to pay in those wholesale unsecured funding markets.
First, it is of particular importance that the mechanisms in the model can be interpreted and communicated so that the model is perceived as a sound tool, both in the internal process and in the Bank’s external communication. In the policy analysis, we also need a framework where the various disturbances can be interpreted and described. The importance of analysing risks also means that we must be able to change the various model mechanisms in a straightforward way. Moreover, the model must reflect the lessons that led to a paradigm shift in economic policy. Expectations must therefore play an explicit role in the model. The model must reflect that inflation is a monetary phenomenon in the long term and that monetary policy provides the economy with a nominal anchor. Norges Bank’s macro models have played a key role in forecasting work over many years. The models satisfy many of the requirements for a sound model, but the introduction of inflation targeting revealed new needs that these models were not designed to meet. Developments in economics and computational technology have also provided new possibilities for constructing and solving macroeconomic models. Norges Bank has therefore started work on developing a new macro model. An important purpose of constructing a new model is to expand our tool kit so that we are better equipped to conduct policy analyses. I would therefore like to devote some attention to this model here, also because it may help explain our thinking as to the functioning of the economy.

An attempt to increase output beyond the level that is consistent with stable inflation will over time lead to steadily rising inflation. Economic agents will eventually incorporate higher inflation into their inflation expectations. In the long run, the result will only be higher inflation, not higher employment. Output and employment will return to their supply-determined level. In the long term, output is determined by the supply of labour, capital, technology and adaptability. Monetary policy has little effect on these factors. In other words, there is no permanent trade-off between inflation and output. Very high inflation is a wartime phenomenon and a phenomenon of the 1970s and 1980s. Substantial real economic losses have followed in the wake of high inflation. High and variable inflation impairs the function of prices as an information vehicle. Over time, monetary policy can determine the inflation rate. Low inflation is monetary policy’s contribution to stable, high economic growth over time. The responsibility for interest rate decisions was delegated to Norges Bank pursuant to the amendment to the 1985 Norges Bank Act and through the change in its application in 1986. The interest rate would no longer be an instrument of industrial or social policy. The last devaluation took place in 1986 after a fall in oil prices. We then shifted to a fixed exchange rate regime. The Norwegian economy had to go through an extensive turnaround operation. The objective of monetary policy was to provide the economy with a nominal anchor.
The first is that there are still strong demand headwinds pushing the natural rate down. These include fiscal tightening, weakness in the global economy, restoration of credit spreads to more sustainable levels and elevated risk aversion which remains as a hangover from the crisis. The second explanation is that as well as headwinds to demand, the trend real rate itself has fallen and that the natural rate is now varying around a lower trend rate. The analysis around the time of the crisis,  7  Williams, J. H. (1931): “The Monetary Doctrines of J. M. Keynes,” Quarterly Journal of Economics, 45(4), 547–587. 7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  including that just described, tended to ascribe the low level of the natural rate to the size of the demand headwinds. Since then, we have learned to be more aware of the structural decline in the trend real rate. This would suggest that some of the low level of the natural rate is due not so much to demand headwinds pushing the rate away from the trend real rate but from the drop in the trend real rate itself. The stance of monetary policy relative to the natural rate remains the same of course. But in this view of the world, we can perhaps expect the natural rate to stay lower even as the headwinds abate.

On the first, the shift of China to greater openness and more consumption-driven growth, which seems to be underway, may if it continues help reduce the supply of savings as would policies to reduce inequality. On the second, the reduction of public investment in advanced economies over the last 30 years has clearly played a part in reducing the demand for investment. Some reversal in that trend internationally would be likely to push up the trend rate of interest. It might also help raise the rate of growth of productivity. In this 10  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  10  respect, it’s worth noting that the leaders of the G20 have recognised the importance of high-quality public investment. 8  The answers to these challenges are not simple. Structural change to raise productivity can be very difficult; it often means there will be losers and winners. Likewise, fiscal policy needs to balance public spending with sustainability through time. These are certainly not, I readily admit, issues for central bankers. It is not so much that we have our plates quite full meeting our much narrower and shorter-term mandates – though that is surely true. It is that, more fundamentally, these are decisions and actions that only governments can and should take. I have set these long-term trends out today with a little bit of trepidation. One of the things I have learnt is that the moment policymakers start to talk about long-term trends, the trends change.
This is attributable to hikes in unprocessed food prices driven by supply-side shocks. 12  BIS Review 68/2010  CPI by Subcategories  Contribution to CPI Inflation in 2009  (Annual Percentage Change)  (Percentage Point)  25  Go ods exc l. Food and Energy 29%  2006 2007  20  2008  Foo d 40%  2009 15  Energy 11%  10  Serv ices 20%  5  0 Food  Energy  Goo ds e xcl. Fo od a nd En ergy  Services  Source: TURKSTAT, CBRT. 35. Source: TURKSTAT, CBRT. Despite having followed a volatile course during periods when temporary tax adjustments were effective, core inflation, which is useful for predicting underlying inflation, had a remarkable downtrend consistent with medium-term targets throughout 2009. Core Inflation Indicators and CPI Inflation (Annual Percentage Change)  12 10 8 6 4 2 0  CPI  SCA-H  SCA -I  Source: TURKSTAT, CBRT. 36. Recent data releases indicate that the pace of recovery in economic activity continues. Domestic demand rises gradually as the lagged effects of monetary policy implementations become evident, whereas, uncertainties regarding external demand persist. Accordingly, we expect that after following a volatile course significantly above the target for some period, inflation will be back on a downtrend by the phasing out of temporary effects as of the last quarter of the year and return to target-consistent levels as of early 2011.

Seven years of unparalleled macroeconomic stability have been followed by seven years characterised by financial instability and a deep recession. It was a salutary lesson for those, like me, who thought we had successfully cracked the problem of steering the economy, and highlighted the need to put in place an effective prudential framework to complement monetary policy. Policy making today consequently looks a much more complex problem than it did fourteen years ago. In Genesis, following his interpretation of Pharaoh’s Dream, Joseph is made the most powerful bureaucrat in Egypt, in which position he ensures that enough grain is hoarded during the seven years of plenty to provide sustenance during the seven years of famine that followed. That is a parable on the value of prudence that the central bankers of the future would do well not to forget. Thank you for your attention! 7  8  Jeremy Stein (2013) “Overheating in Credit Markets: Origins, Measurement, and Policy Responses”, speech at the Federal Reserve Bank of St. Louis, 7 February. BIS central bankers’ speeches  BIS central bankers’ speeches  9  10  BIS central bankers’ speeches  BIS central bankers’ speeches  11  12  BIS central bankers’ speeches  BIS central bankers’ speeches  13  14  BIS central bankers’ speeches  BIS central bankers’ speeches  15