samchain/econo-pairs-v1 huggingface dataset:
Page 6  Where analysis of monetary transmission matters is in calibrating any policy response. The MPC needs to ensure that the monetary impulse transmitted through asset prices helps navigate the narrow course between, on the one hand, preventing above target inflation from becoming embedded in expectations and, on the other, introducing unnecessary volatility into activity and employment, and adding to any undershoot of the inflation target at longer horizons. Crucial to this is ensuring monetary developments do not accommodate price, wage and cost setting behaviour inconsistent with achieving the 2% inflation target. And one aspect of that assessment is how the evolution of the stock of assets held by the central bank as a result of QE plays out. At the Bank of England, we stopped buying assets through the creation of central bank reserves last December. The process of shrinking the QE asset portfolio – so-called quantitative tightening (QT) – commenced in February, as we ceased reinvestment of maturing bonds from that portfolio. And we are currently considering whether – and, if so, how – to begin sales of gilts held in that portfolio. (The MPC has promised to report further on its prospective approach to sales at its August meeting.) Thinking through the implications of QT for the overall stance of monetary policy is therefore key to our current policy analysis. I hope to shed some light on my considerations in that regard. Future: What implications can we draw for the future?

But in the aftermath of the global financial crisis – with a long-term downward trend in the equilibrium real interest rate, R-star; with nominal policy interest rates stuck for long periods at their effective lower bound; and with disruptions in the financial sector impeding the traditional transmission of monetary policy – the use of QE and other balance sheet policies by central banks has become mainstream. Pace Poole, QE policies have largely been expressed in quantitative terms (even if that approach has been somewhat watered down over time). For example, at the Bank of England QE measures have been announced in terms of changes in the stock of gilt holdings in the special facility created to manage the asset portfolio. Such an approach inevitably begs the question of whether, and if so in what form, monetary quantities have re-asserted themselves in the conduct, transmission and communication of monetary policy. More generally, the financial crisis and its aftermath have demonstrated that financial markets are subject to periodic disruption. This questions the assumption – embedded in much of traditional finance theory – that equilibrium yields are independent of the quantities of the supplies of different assets. Failure of that assumption opens up scope for monetary quantities to have an important influence over a wide range of asset prices and risk premia, and thereby play an important role in monetary policy transmission.
Chart 3b uses slightly different measures for the same things – the average policy vote on the MPC and a survey measure of growth6 – but the conclusion is the same. Policy is tightened when growth is strong and loosened when it’s weak. It’s no surprise to find that the government balance is similarly cyclical (3c) – or, therefore, that it’s also well correlated with the behaviour of monetary policy. Furthermore, the responsiveness of policy rates to economic growth seems to be necessary to stabilise inflation. Certainly inflation has been very stable under inflation targeting (more stable, in fact, than in any 25-year period in the 800-year history of the estimated UK series). And you have to go back all the way to 6 A weighted average of the composite PMI and (to cover the distribution sector) the headline balance from the CBI distributive trades survey. 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  the pre-WWI classical gold standard, the last time the UK had something akin to a “target” for domestic prices7, to find a period when short-term interest rates were reasonably well correlated with economic growth – or in which inflation was well controlled (Chart 4). Chart 3a: Monetary policy and economic activity correlated under inflation targeting  Chart 3b: Also apparent using MPC votes and survey measure of growth  Sources: De Rezende and Ristiniemi (2020), ONS and Bank calculations. 6-month averages, combined IHS Markit/CIPS and CBI distributive trades lagged one month.

How interest rates and bond yields respond to shifts in demand Concerns about “monetary finance” have arisen because policy has been eased at the same time the government’s deficit has gone up. The main problem with this argument is that the monetary stance and the fiscal balance are both cyclical – they tend to rise in upswings and fall in downturns. You’d therefore expect  6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  them to be correlated this way. In fact, in the UK data, short-term interest rates have become more tightly correlated with economic growth since inflation targeting was introduced. Since the financial crisis, with policy interest rates pressed up against the effective lower bound, QE has instead become the marginal instrument of policy for many central banks. With much less of a track record to go on, it’s harder to demonstrate as clearly the cyclical behaviour of asset purchases (though the direction of the correlation – QE tends to happen when growth is weak – is clear enough). Nor is the pro-cyclicality of bond yields as evident as it is for short-term interest rates. Nevertheless, if an economic downturn were sufficiently widespread, and expected to persist for some time, it’s quite possible that expected future interest rates (and therefore bond yields) would decline of their own accord, even without the assistance of QE and even if one of the consequences of the downturn was also a rise in public-sector borrowing.
We are fortunate that - as I told the Treasury Committee of the House of Commons last week – we and the FCA are able to work closely together on these issues. And we are fortunate that the Bank of England’s wider programme of intelligence gathering allows us to explore these issues alongside market participants. For while only policymakers may end up going the final step to assess what all this could mean for the real economy, everyone has an interest in continuing to think about what collateral management means for the resilience of markets. The second possible iceberg is the liquidity mismatch in investment funds. The 2008 variant of this was egregious. Many of you will recall looking on in horror as $ of redemptions by their investors forced money market mutual funds into fire sales of their assets, including commercial paper. These funds had offered redemption of each $ share at par. They walked like a bank and quacked like a bank. They were shadow banks. So when the Reserve Primary Fund, which held $ of Lehman Brothers’ commercial paper, announced it would no longer be able to meet its offer and ‘broke the buck’, a run developed on these funds (slide 12). Corporate funding markets, particularly for banks, went into meltdown. The United States government stepped in to guarantee redemption at par from money market funds– effectively a form of deposit insurance. 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  That iceberg has now melted.

In the short and medium term, the crisis will have desinflationary effects that are already noticeable, with inflation temporarily falling in August by 0.2% in the euro area, and by 0.1% in Germany. For a year as a whole, we are expecting a slightly positive inflation of 0.3% in 2020 and 1.0% in 2021. As you know, we unfortunately remain well below our inflation target of "less than, but close to 2%". The other aspect of the response to the health crisis are fiscal measures, primarily at the national level. Germany clearly made greater use of the financial leeway it had built up since the 2009 crisis. Its fiscal stimulus package (as a percentage of GDP) is at this stage greater than France’s. The effectiveness of its stimulus package is still difficult to anticipate: in particular, the 2/4  BIS central bankers' speeches  temporary reduction in VAT appears costly. The French government also announced a EUR 100 billion stimulus package last week. I wish to mention three positive features. It focuses on business supply and investment, and not household demand. This is fully justified, since households, protected by short-time working measures, except for the most vulnerable ones, will have saved nearly EUR 100 billion this year. This plan also has a strong focus on transformation, including ecological reconstruction - a third of the funds are allocated to this area.
The prospect of a disintegrating monetary union is harmful for both weak and strong member countries. Weak economies experience a currency run, which in the single financial space of a monetary union translates into two phenomena: loss of value for any liability issued by domestic borrowers – including the sovereign – and a depleting deposit base for domestic banks. Here, the scramble for liquidity and the flight from bank liabilities act as a powerful shock on domestic money demand. This is a money demand shock of the worst possible kind, one which shrinks the money multiplier and puts downward pressures on domestic consumer prices. At the same time, countries perceived as safe havens are the target of significant capital inflows, which mainly take place via cross-border bank transfers. In these receiving countries, the monetary base expands. But in order to induce local depositors to hold the excess cash which they are receiving, the expected return on all the competing assets has to fall. This means that the prices of a wide range of securities and of real capital are bid up on impact. Asset price inflation looms. What is the role of the central bank which finds itself in the middle of these panic transactions? 3  Monetary policy should offset the genuine drift in the nominal scale of the economy, which measures the progressive loss of purchasing power of the currency.

Then, and provided that precedence is respected, the ECB can support the economic policies of the EU on a broader scale. The legal formulation of the Treaty is an abstract determination of priorities. To define the objective precisely and establish a relationship between the objective and the policy – consistently conducted and communicated – a strategy is needed. 1  I wish to thank Tobias Linzert, Stefano Nardelli, Massimo Rostagno and Arthur Saint-Guilhem for their contribution to this speech. I remain solely responsible for the opinions contained herein. 2  Michel Aglietta: “Money: a matter of credit and trust”, Journées internationales d’économie monétaire et bancaire, Lyon, 6–7 juin 2002. BIS central bankers’ speeches  1  The strategy of the ECB makes the Treaty mandate more precise in three respects. First, it provides a quantitative definition of “price stability” by indicating a range for year-on-year changes in the harmonised index of consumer prices which the ECB considers consistent with conditions of stable prices. That does not necessarily mean zero inflation. The price stability range that the ECB considers equivalent to “stable prices” covers positive inflation rates lower than 2%. Second, the strategy identifies, within that range, inflation levels which the Governing Council of the ECB aims for, in its monthly policy decision. We aim at inflation rates that are below, but close to, 2%.
But  BIS Review 93/2008  5  the experience of the past year has shown that diversified pools and seniority in the tranche structure may not provide adequate protection against highly co-ordinated or “systemic” risk. Chart 2 – Information Loss  Source: BIS Committee on the Global Financial System  21 Many investors had, of course, also delegated their monitoring responsibility to credit rating agencies. This offered, potentially, a very significant efficiency gain. Rather than many investors paying privately to be moderately informed – with corresponding substantial replication of investment analysis – credit rating agencies were paid to be well informed and to make this information public. But we now know that rating agencies were also unable to overcome these same underlying information problems and have been forced to make multiple down-grades to many of their ratings of structured credit products and to modify the models they use for ratings. A major problem for the market as a whole has been that once investors collectively lost trust in rating agencies, the next most informed participants in the market were a long way behind. As a result, there was a step-change down in the level of confidence in the likely performance of these assets and a consequent system-wide increase in the risk premia required to hold such assets.

The array of options with different “strike prices”, which represent the thresholds beyond which the options do or do not pay out, allows market participants to express opinions about the distribution of possible future aggregate corporate conditions. 12 Credit default swaps are not the only way an investor can engineer a targeted exposure to credit risk. Alternatively, an investor can take a position on corporate credit risk by purchasing a securitised product such as a collateralised debt obligation (CDO). In this case, a pool of assets such as corporate bonds is created and the payment streams produced by these are allocated to different classes or tranches depending on the default experience. This allows investors to take positions on the scale of default losses in the underlying asset pool. 13 Stepping back, the extended example above highlights how financial engineering has facilitated the decomposition of corporate credit risk into different subcomponents and the recombination of these subcomponents into new financial products with different risk characteristics. There are many other examples across the financial system. The consequent broadening of the range of financial products has improved choice and the matching and tailoring of products to customer needs. For instance, the ability of non-financial corporates to manage their risks has been transformed by their increasing use of derivatives to hedge interest rates and currency risk as well as their exposures to commodity prices.
These three elements broadly correspond to the current structure of this seminar, and will therefore be treated in one way or another. Let me conclude with two final points on the link between labour market reform and other policy measures. First, labour market reform is also the best case where the complementarities with the exit strategies needed are most obvious. If we take the Spanish case as an example, we can see that unemployment benefits amounted to around 3% of GDP in 2009. And the employment losses associated with this increase in unemployment have also had a significant negative impact on public revenues. Thus, a non-negligible part of the huge increase in the deficit in the past two years is directly or indirectly related to labour market trends. Preventing this increase in unemployment from becoming structural would greatly smooth the fiscal consolidation process. That leads to me to emphasize a second point: it is important that different reforms should be pursued in unison, and in particular that labour market reforms be accompanied by product and services market reforms. In this regard, it is vital to push through structural reforms  BIS Review 65/2010  3  providing for the elimination of obstacles to effective competition and of those that may hamper the reallocation of productive resources. Indeed, only with competitive and flexible product and services markets, would labour market reforms translate into higher activity and employment rather than higher rents.

News conference on new banknotes  Berne, 3 September 2019 Fritz Zurbrügg  Introductory remarks by Fritz Zurbrügg  Ladies and gentlemen I am very pleased to welcome you to our presentation of the new 100-franc note, the last denomination of the ninth banknote series to be issued. To mark the final milestone in this challenging project, as well as inviting the media we also have some guests here who were heavily involved in developing and producing the new banknote series. It gives me great pleasure to welcome representatives from our suppliers Orell Füssli, Landqart, Sicpa and Kurz. I am going to start by unveiling the hotly anticipated 100-franc note, before showing you the full series, with all six denominations together for the first time. My colleague Thomas Jordan will then review the issuance process for the entire new series, before looking to the future. After that, we will take your questions on the new 100-franc note, and the ninth series in general. We do of course have all the denominations here with us, so that you can take photos of both the 100-franc note and the entire series. Finally, we will round off today’s event with a drinks reception, to which you are all warmly invited. But let’s start by unveiling the last denomination in the new banknote series. Voilà, the new 100-franc note. I’ll now take you through the details of the new note. Like its predecessor, the new 100-franc note is blue.
The capital savings are even more dramatic for SME loans that qualify for retail treatment: participating banks from Basel Committee member countries reported that their capital requirements on SME exposures qualifying for retail treatment would decline by an average of 12-13% under the standardised approach and up to 31% under the IRB approach. Similar conclusions can be drawn for those European banks participating in this study. Actually, EU banks in general reduce their capital charges for loans to SMEs compared to the current rules, and this decline is slightly stronger than the average of all banks providing data. I should note that QIS 3 did not fully recognise the risk-mitigating effects of collateral and guarantees, so we expect that, in some cases, banks may experience even larger “savings” when the New Accord comes into force. Other studies concur. For example, researchers at my home institution, the Bank of Spain, combed through a database covering almost every loan made by a Spanish bank to evaluate the potential effects of the New Accord on SME lending. Their findings, which, if you are interested, I can share in written form with you, agree that the New Accord will not create tougher capital requirements for loans to Spanish SMEs and may, indeed, reduce them. We are extremely pleased now to have tangible evidence that the New Accord will not create burdens for banks that lend to SMEs.

But in the wake of both (1) clear communication that the MPC remained focused on its November meeting, when a comprehensive assessment of the macroeconomic and market news as interpreted through its forecast would be available; and (2) the introduction of temporary and targeted financial stability operations designed to address specific cases of market dysfunction, any inter-meeting rise in Bank Rate was largely priced out. Market participants had come to understand that monetary policy would remain focused on the outlook for inflation, leaving other mechanisms to address market dysfunction. Going forward, maintaining this distinction remains key to monetary policy's pursuit of the inflation target. More generally, whether reflecting pressures from the fiscal, financial or other domains, it is essential that the credibility, stability and integrity of the institutional framework governing UK macroeconomic policies are maintained. This is the environment within which the Bank's monetary policy operates most effectively. Preserving that framework requires that policymakers are assigned clearly-defined responsibilities; that they strive to achieve clearly-identified objectives; and that their institutional independence – and that of other policy actors – is fully respected. A view on the MPC's reaction function Having set out thoughts about the institutional environment for monetary policy, let me conclude with a few more specific observations about the macroeconomic conjuncture. I'll express these through the medium of my interpretation of what is often called the MPC's 'monetary policy reaction function'. When coming to monetary policy decisions, I take a 'full information approach'.
Elvira Nabiullina: Review of Russia's economic and financial developments in 2020 and forecast Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the plenary session of the State Duma of the Russian Federation, Moscow, 18 November 2021. * * * Good afternoon, Mr Volodin, good afternoon, deputies. Today, I am presenting the draft Monetary Policy Guidelines for the next three years. In the Monetary Policy Guidelines, we outline our vision of future developments in the coming three years and explain the workings of our monetary policy, which is aimed at delivering on an inflation target of close to 4%, and thus supporting sustained economic growth and increasing people’s welfare. The post-pandemic economic recovery proved almost as delusive as the post-Covid recovery of a patient. The worst is over, and the patient would rather ignore the annoying symptoms that remain, but the patient’s health is still in danger. Care and possibly treatment is needed. In the case of the domestic economy, accelerated inflation is a symptom just like that: it should not be neglected, and it makes us tighten policy after a loose monetary policy stance. In 2020, multiple industries were brought to a halt by the pandemic. Our action was a drastic and quick reduction in the key rate. Confronted with the need to offset the loss in household income and corporate revenue, we wanted to ease loan burdens on companies and support the issue of new loans.

Over the business cycle, the real interest rate required to sustain output at potential and inflation at target, can fluctuate around the long-run real rate as a result of shorter-term influences on the economy. At any given time, other factors like fiscal policy, uncertainty and global growth prospects may push the real rate required to bring inflation back to target further above or below the long-run real rate. But given the slow moving nature of the underlying drivers of the long-run real rate, one would expect the downward shift in the overall interest rate cycle to persist into the foreseeable future. It is this downward shift in the long-run real rate that has lain, in part, behind the Bank of England’s message that any future increases in rates will be limited and we should not expect to see a return to the levels of policy rates we saw before the crisis. And this is exactly what motivates me today to speak about the implications of this low rate environment for financial stability. Financial stability challenges of low for long: the financial sector  I want to look today at the three main challenges to financial stability that this environment could pose and briefly consider possible policy responses. The first challenge is that a slow or an unwilling adjustment to the lower returns implied by low for long can lead both to greater risk taking and less resilience in the financial sector. 7  Holston et al (2017).