samchain/econo-pairs-v1 huggingface dataset:
And with growth turning out much weaker than expected, one might also have expected to see inflation turning out even weaker than that in the medium term. As Chart 3 shows, however, the outturn was in fact markedly higher than in our central projection, with inflation peaking at 5.2% in September 2011. In large part, that was down to higher than anticipated energy and import prices, as the strong recovery in the energyintensive emerging economies, together with supply concerns, put upward pressure on oil and other commodity prices. Higher energy and import prices also further depressed UK domestic demand growth through their adverse impact on household real incomes. The primary reason for believing that the nascent resurgence in growth that we have seen this year will be sustained lies in the moderation of these past headwinds. First, UK banks have made considerable progress in bolstering their capital positions, in part prompted by the Prudential Regulation Authority’s balance sheet exercise earlier this year. Price-to-book ratios have risen back to around unity. And bank funding costs have fallen sharply over the past year (Chart 4), aided by the Funding for Lending Scheme. UK banks are now well placed to provide the credit necessary to support a recovery. Second, the euro area is no longer in existential crisis, in part as a result of the willingness of the European Central Bank (ECB) to take redenomination risk off the table through its Outright Monetary Transactions programme.

It is against this background that the MPC in August decided to provide some explicit guidance about the considerations that will inform our policy decisions over the coming months. In particular, we wanted to signal that we would not immediately begin to withdraw the considerable monetary stimulus injected after the financial crisis simply because growth had picked up. Rather we wanted to make clear our intention to maintain the stance of policy until it was clear that the recovery was well entrenched and the margin of economic slack had been substantially reduced, provided doing so did not entail material risks to price stability or financial stability. As you will all know, we implemented that by committing not to raise Bank Rate until after the unemployment rate has fallen to 7%. This is a little higher than our current estimate of around 6.5% for the medium-run equilibrium rate of unemployment – that is, the sustainable unemployment rate once nominal rigidities and other transient factors have worked their way  2  BIS central bankers’ speeches  through. In the long run, one would expect the sustainable rate to be even lower, as workers who have become disconnected from the labour force are encouraged back into it. Specifying our guidance in terms of the unemployment rate, rather than, say, some estimate of the output gap, makes particular sense because of the uncertainty surrounding the achievable level of productivity in the economy.
It has been enjoyed by generations of children, so it has a particular resonance at tonight’s event supporting Children in Need. And it has a happy (diverse, multi-cultural) ending. But The Sneetches also shines an uncomfortable spotlight on a psychological flaw in us all – the desire to differentiate, to stereotype. A half-century on, this flaw is one with which society continues to wrestle, not least in a world where the co-mingling of cultures, races and creeds has never been greater. In practice, this co-mingling has not always had such a happy ending. Tonight, I want to discuss some of the issues around diversity. These are relevant to groups large and small, from communities and organisations to economies and nation states. These issues affect all of us, children and adults, whether at school, work or play. In keeping with the spirit, I want to discuss diversity by drawing on a diverse a set of disciplines to explore the lessons they hold. And I will conclude with suggestions for some new directions in promoting diversity, in particular in organisations such as the Bank of England. We are all sneetches Let me start with what might appear, on the face of it, a rather controversial statement. Everyone is this room is a star-bellied Sneetch. I am, all of you are and everyone outside this room is too. By that I mean we all discriminate, to a certain degree and in certain situations, based on the characteristics and creeds of the individuals we encounter.

Recruitment policy might usefully follow in the footsteps of regulatory policy if it, too, is to maximise the organisational and social externalities of diversity. To see how and why, consider a simple example. 71 There are two candidates for a position, A and B. They do a test based on the attributes useful for the hiring organisation. These tests might be state of the art, including all of the diverse attributes one would wish in an organisation – cognitive, interpersonal and experiential skills. In this test out of 10, candidate A scores 8 and candidate B scores 4. Which one should be hired? The answer is easy. The evidence points strongly to A as the candidate best meeting the requirements for the job. They have, quite literally, ticked the right boxes. But let’s add a twist. What if the answers A gets wrong are the ones B gets right? And what if the questions existing employees get wrong are also the ones B gets right? In other words, what if candidate B brings skills to the organisation which otherwise do not exist. The right recruitment decision for the organisation is then to choose B rather than A. Candidate B adds more to the collective ability of the organisation, even though they are weaker individually. The question is, how often would existing recruitment practices deliver such an outcome? In practice, I think rarely. Individuals are typically judged on the alignment between their skills and those of the existing organisation.
Portfolios are evaluated and re-optimised on a monthly basis, based on a $ initial stake. How would these strategies have fared historically? Charts 7 and 8 show cumulative returns to these strategies in the US and UK. They suggest a dramatic evolutionary pattern. The speculator’s $ stake in US equities in 1880 would by 2009 have grown to over $ The fundamentalist’s same $ stake would have fallen to be worth around 11 cents. Impatience would have trumped patience by a factor of half a million. This out-performance is mirrored in the UK, if less dramatically (Chart 8). Starting in 1920, the value of the speculator’s £ stake would have risen to around £ while the fundamentalists’ stake would have fallen to 32 pence. Momentum would have mopped the floor with fundamentals. The sheep would have defeated the goats. In an evolutionary game, these profit profiles would alter the balance of investors. Impatient investors would have profited and thrived, while patient investors would have lost and died. Nature would have deselected the patience gene. As Keynes predicted, market inefficiencies would have supported the myopic and irrational at the expense of the solvency of the far-sighted. 31  For example, French (2008). BIS Review 114/2010  9  Patience and trading If impatience strategies flourish, we would expect this to be reflected in a secular fall in the average duration of asset holdings, as the fraction of short-term investors rises. Again, what does the evidence suggest?

Preferences switch as the distant becomes instant. 5  Weber (1958). 6  Franke et al (2007). 7  Levine (1997). 8  Thaler and Shefrin (1981). 9  McClure, Laibson, Loewenstein and Cohen (2004). 10  For example, Pigou (1920), Ainslie and Haslam (1992) and Laibson (1997). BIS Review 114/2010  3  In these situations, the double-self becomes a practical reality for both animals and humans. Experimental evidence lends strong support. Hyperbolic discounting has been found in such diverse case studies as pigeons pecking corn, students choosing video games, women choosing anaesthesia in childbirth and drug addicts assessing their next fix. 11 Psychiatrically, it may emerge as multiple personality disorders. Addiction is, in some respects, hyperbolic discounting writ large. 12 It is Pigou’s defective telescope being held the wrong way round. Immediate gratification (drugs, alcohol, sex, food) is sought irrespective of the long-term consequences. There is a neurological explanation for such behaviour. Drugs and some foodstuffs flood the brain with dopamine, which stimulates the midbrain associated with instant reward. This might explain why addictive behaviour appears to be more prevalent in humans than in animals. While few squirrels are dieters, even fewer are glue-sniffers. Impatience has implications for economic and financial systems every bit as profound as its well-behaved twin. For economies, hyperbolic discounting would tend to generate undersaving, as people seek instant gratification. And neo-classical growth theory says that undersaving has adverse implications for long-run investment and growth. Some jam today would come at the expense of a whole jam-jar tomorrow.
Norwegian monetary policy In the long term, a country’s exchange rate tends to move in line with developments in domestic price and cost inflation compared with other countries. If the level of prices in one country rises at a faster pace, that country’s currency will tend to depreciate to the same extent over time. Empirical evidence for these effects has been found for a number of countries, although the effects are relatively weak in  5  BIS Review 105/2000  the short term. However, substantial medium-term convergence in purchasing power parity has also been found between Norway and its trading partners.3 This means that higher inflation in Norway than in our trading partners has been followed by depreciation of the nominal exchange rate. This is reflected in the fact that the real krone exchange rate has been relatively stable over time. Movements in the krone exchange rate against the German mark over the past 30 years may serve to illustrate this. In the 1970s and 1980s interest rates were kept low, and they were politically determined. Price and cost inflation was generally higher than that of Norway’s trading partners. Frequent devaluations were used to redress the negative effects of high price and wage inflation on 3  See Akram (2000). BIS Review 105/2000  6  competitiveness. The average rate of increase in prices between 1973 and 1987 was almost 10% twice as high as the level in Germany.

I trust that by sharing with you my views on our monetary policy normalisation path I have reassured you about our commitment to stopping high inflation from becoming entrenched. The more confident our fellow euro area citizens are that inflation will return to 2% in a timely manner, the smoother the adjustment process will be. Thank you. 16  Fo r instance, Banco de España staff have co nducted a mo del-based exercise to assess the impact o n euro area inflatio n of a non-targeted, permanent public expenditure sho ck of 1% of GDP. The results sho w that fo r each 1% of GDP expenditure, inflatio n increases by 0.2 pp three years later. This relatio nship might be stro nger depending o n the co mpo sition o f expenditure and against a backdro p o f supply-side co nstraints. 9
Well, by considering how quickly we should aim to return inflation to target. If, for instance, inflation is below target while growth in the economy is high, as has been the case in Sweden in recent years, a monetary policy that aims to quickly push up inflation through very low interest rates could lead to demand being stronger than the economy can manage further ahead. We would then risk overheating, where prices and wages begin to increase rapidly and where inflation expectations would perhaps also be adjusted upwards. The Riksbank could then be forced to tighten monetary policy substantially. If we instead gradually begin to raise the interest rate earlier, there is a greater chance that we can avoid overheating. We can thereby also avoid the recessions that often follow overheating. This type of policy can thus mean that the fluctuations in the economy are smaller over time. This is where the  BIS Review 101/2006  3  two-year horizon that we work with comes in. It means that we can in normal cases allow up to two years before inflation attains the target. What I have described so far with regard to the principles for monetary policy is currently an accepted view of how monetary policy with an inflation target should be conducted. Central banks around the world have chosen slightly different varieties, where the details of the monetary policy system may differ considerably. However, the overall strategy is still the same. How to take into account house prices?

It is difficult to know how quickly this type of measure can have  BIS Review 101/2006  5  an effect, or how substantial the effect will be. There is thus considerable uncertainty in assessments of this nature. The overall assessment we make today is that the new government’s economic policy will have an impact on both supply and demand in the economy, but that the effects on inflation will overall be slight. However, we will have to follow developments closely and regularly evaluate our forecasts. In short, just as we always do. Summary Let me in conclusion summarise the most important points I have taken up today. My main message from the backward glance is as follows: •  The changeover in economic policy that began almost one and a half decades ago has given good results. •  In an efficiently function regime inflation will from time to time deviate somewhat from the target. One reason is that various changes in the economy occur now and then, as they have done in recent years, and the effects of these can be difficult to predict. With regard to future developments, my most important points can be summarised as follows (Figure 15): •  The prospects for the Swedish economy look favourable. We are expecting growth to be good during the forecast period and the labour market situation to continue improving.
Underlying inflation in the fourth quarter of 2002 Projections published at different times and actual inflation 3  3 Actual price inflation  2.5  2.5  2  2  1.5  1.5  1  1  0.5  0.5  0  0  0 1 01 01 01 01 01 02 02 02 02 02 02 03 l l r y v 0 n 0 ar v y v Ju Sep No Jan Ma Ma Ju Sep No J an No Ja M Ma  Sources: Statistics Norway and Norges Bank SG Gausdal 31.01.03  The underlying rise in prices has slowed in recent months, down to 2.0 per cent in the fourth quarter of 2002. The projection for the underlying rise in prices in that quarter was revised down in autumn 2001, from 2.5 per cent to 2.1 per cent. Since then, our projections have varied between 2.0 and 2.2 per cent. The inflation projections for the fourth quarter of 2002 have been relatively stable since the end of 2000 and close to the actual level of inflation. The low level of inflation is closely related to specific economic developments that have taken place over the past two years. Three important disturbances have influenced the 22 months of inflation targeting that lie behind us: strong wage growth, the global downturn and a considerable appreciation of the krone. The wage settlement in 2002 resulted in the highest increase in real wages in a generation.

Accordingly, the behavior of the labor market must be closely monitored in order to prevent the incubation of inflationary pressures. The evolution of output and demand is also important in this setting. If they keep on growing as strongly as they did in the first quarter, an over-utilization of installed capacity may result, generating inflationary pressures. We have paid particular attention to consumption; however, it is unlikely that the current dynamism can be sustained very long. From a longer perspective, the recent increase in consumption may be responding to a recovery from the crisis of 2008–2009 and the earthquake and tsunami of 2010. Estimates of the ratios between consumption, income and their trend levels show no significant differences (figure 11). In addition, a substantial part of the consumption components that show the larger increases – durables and clothing – is generally of imported origin, so a lower exchange rate favors consumption and replacement, especially considering that their rate of  BIS central bankers’ speeches  3  depreciation may have accelerated in tandem with technological change. This is compounded by the low prices of these goods in dollars. Meanwhile, growth in consumer credit, although showing a higher velocity in the margin, has not posted any increases like the ones observed in previous expansion phases or in other emerging economies (figure 12). About the implications of credit behavior, the IEF states that, so far, indebtedness has not risen above its long-term trend.
This may be a particular concern among those who argue that the current low policy rate environment has fueled an unsustainable rise in asset prices beyond their fundamental values. However, this is not clearly the case on a broad basis. Obviously, risky asset prices have undergone a historic rise from their trough in early 2009. But this rise began from an extreme starting point, one in which asset prices were being depressed by the baseline forecast of a deep recession, by the prospect of further downside risks to the economy, and by very elevated risk premiums. As the economy stabilized, asset prices benefitted from both the improving economic outlook and a significant renormalization of risk premiums – a pattern that was a desired outcome from the stance of monetary policy. Moreover, we do not see definitive signs that risk premiums have broadly become too low at this point. To be sure, a number of significant risks remain in the economic outlook, and those translate into financial market risks. Eventually, though, we expect to reach a period of sustained, above-trend growth to absorb the substantial slack in place, which is an environment that should be quite supportive of risky asset prices. Policy tightening will presumably occur as that happens, limiting the downside risk to markets associated with policy actions. Conclusion In conclusion, the exit from the various liquidity facilities that the Federal Reserve implemented has been very successful, as the up-front design of those facilities reduced the need to actively manage the end of those programs.

We have witnessed a remarkable improvement in the functioning of short-term credit markets and an impressive recovery in the stability of large financial firms. While a whole range of government actions contributed to this recovery, giving financial institutions greater confidence about their access to funding, and that of their counterparties, was most likely a crucial step toward achieving stability. Moreover, the exit from these facilities has been quite smooth. At their peak, these facilities provided more than $ trillion of credit to the economy. Today, the remaining balance across them is around $ billion. It is impressive that the Fed was able to remove itself from such a large amount of credit extension without creating any significant problems for financial markets or institutions. That success largely reflects the effective design of those programs, as most were structured to provide credit under terms that would be less and less appealing as markets renormalized. This design worked incredibly well, as activity in most of the facilities gradually declined to near zero, allowing the Fed to simply turn them off with no market disruption. The success of these facilities should be judged by the outcomes they produced for financial market functioning, and not by the financial returns they generated on the Federal Reserve’s books. However, there are several reasons why the Fed might be expected to profit from this type of lending under most circumstances.
Vittorio Corbo: Monetary policy in emerging countries – the view from Chile Speech by Mr Vittorio Corbo, Governor of the Central Bank of Chile, at the Bank of Italy, Rome, 18 June 2007. Prepared for presentation at Banca d’Italia. I thank Marcelo Ochoa and Ivonne Vera for assistance and Klaus Schmidt-Hebbel and Andrea Tokman for suggestions and comments. *  *  *  Emerging economies have recorded major progress in the conduct and results of monetary policy during the last two decades. This achievement is due to implementation of more robust and transparent monetary regimes, complemented by adoption of flexible exchange rates, sustainable fiscal policies, and stronger financial systems. Among emerging economies, Chile’s experience is of particular interest. It shows that monetary stability can be attained as a result of coherent policies, overcoming decades of macroeconomic instability and weak credibility. This presentation documents the improvement of monetary policy conduct and results in emerging economies in general and Chile in particular. Section 1 summarizes the overall trend and specific components of macroeconomic adjustment observed in emerging economies. Chile’s transition toward its current monetary policy framework, based on full-fledged inflation targeting, is described next. Section 3 analyzes and documents the results of improved monetary policy in emerging economies and in Chile during the last two decades. Brief conclusions close the presentation. 1. Macroeconomic adjustment in emerging economies  Macroeconomic management in emerging markets has improved substantially in the last decade.

Particularly economic independence of central banks – the freedom of taking policy decisions independently of political interference – places Chile well above the average level of independence of both emerging and developed economies in 2003. Chile has shown a responsible fiscal policy, which has contributed significantly to successful monetary policy. During the 1990s, the fiscal balance averaged a surplus of 1.5% of GDP. The above-mentioned structural fiscal surplus rule stabilizes government spending over time, by linking it explicitly to permanent government revenue. Therefore fiscal dominance of monetary policy is ruled out in Chile, as a result of central bank autonomy and Chile’s sound fiscal policy. Public debt has shown a substantial decline since the 1990s, as a result of prudent fiscal policy. The share of consolidated gross public debt has been reduced from 76% of GDP in 1990 to 20% of GDP in 2006, whereas the consolidated net public debt position turned from 34% of GDP in 1990 to -6% in 2006 (figure 3). The successful performance of the fiscal position has been enhanced by the fiscal balance rule applied since 2001 (figure 4). Chile’s good growth performance, complemented by a market-based incentive structure, appropriate regulation and sound supervision of the financial system, has resulted in a safe and sound financial system and deep capital markets. As a result of the major banking crisis that came with the deep 1982-1983 recession, the 1986 Banking Law enhanced regulation and supervision of the financial system.