samchain/econo-pairs-v1 huggingface dataset:
“Core” inflation is still running at over 1% and, barring another steep decline in food and energy prices over the next year, headline inflation is likely to rise quite steeply in early 2016. I’m also struck by the rarity of persistent deflation in the past 15, particularly amongst countries with an independent monetary policy. As we’ve seen, long periods of falling prices were perfectly common during the Gold Standard. That’s inevitable under a commodity peg if, over any period of time, the commodity itself is in fixed supply. The same was true in other countries at the time and, infamously, during the Great Depression. It was only when Britain came off gold, in 1931, that its nominal income started to accelerate 16. And since the Second World War, and the abandonment of commodity standards, positive inflation has been the norm – so much so, in fact, that the commonly cited example of the Japanese deflation is almost unique. Chart 12a Deflation episodes are rare  Chart 12b Even rarer in countries with floating exchange rates  Source: Bordo and Eichengreen, IMF and OECD  Source: Bordo and Eichengreen, IMF and OECD  Note: Sample 1960-2010; 3300 observations  Note: Sample 1960-2010; 3300 observations. 15  A very recent paper by Claudio Borio and co-authors at the BIS makes the same point (Borio et al. (2015)); see also Broadbent et al (2010). 16  For more on the contractionary effect of the Gold Standard during the Great Depression, see Eichengreen (1996).

And quite a bit of the high-frequency variation in the CPI arises from things that don’t directly affect nominal pay – taxes and import prices, for example – but do affect its real value. When taxes or import prices go down, real incomes rise (and viceversa). This produces a negative near-term correlation between inflation and real income growth; controlling for nominal pay, there is also a clear negative correlation between surveyed inflation expectations and household optimism (Chart 11). Chart 10 Consumer confidence has strengthened in US, Euro area  Source: European Commission, Conference Board  Chart 11 Surveyed household inflation expectations, optimism negatively correlated  Source: ONS, Gfk/EC, Barclays Capital. Note: * after controlling for current wage growth. These results might give one pause about whether the “delayed consumption” channel really is that important, or whether the surveys of inflation expectations are really telling you about what matters. The link between consumption and real interest rates is not an empirically strong one 13. Other measures of inflation expectations – for example from financial markets – are less depressed (Chart 9). A recent study using US data found that, even controlling for nominal income, there was no correlation across individuals between their reported expectations of inflation and spending 14. At the very least, the results are a reminder not to consider current inflation or survey measures of household inflation expectations on their own, but in the context of what’s happening to incomes and interest rates.
Improving access to finance and responsible lending by the financial institutions coupled with sensible and prudent use of credit by the borrowers are an imperative for the consumers and for the wider economy. Being financially competent can also act as the first line of defence against falling prey to financial scams or frauds and abusive selling practices. Indeed, financial education initiatives complemented by fair and responsible business conduct are not only essential complements to financial inclusion, they contribute to broader financial stability and consequently improving the lives of members of society. For financial educators and policymakers, the challenge ahead is a daunting one, given the scope of the task and the rapidly changing environment. There has been no time like the  BIS central bankers’ speeches  1  present, where the financial education and financial inclusion agenda has risen to such prominence at the global, regional and national levels. We should seize this opportunity. The increased visibility of financial education and financial inclusion should at least make our work a little bit easier especially in securing top level commitment to advance this agenda and ensure better alignment among various stakeholders. It is in this context that the global leadership of institutions like the OECD, the Alliance for Financial Inclusion (AFI) and the World Bank is important to sustain the momentum for greater progress and champion the financial education and financial inclusion agenda.

Since then, Asia has also been affected by the globalisation of terrorism, geo-political risks and disease. Indeed, this time last year, the mobility of people in the region was paralysed by SARS and geo-political risks prevented Governors from having an annual meeting for the first time in the Bank’s history. And recently there have been predictions that the large accumulation of foreign reserves and the associated domestic monetary management problems are presenting considerable risks to financial stability. I do not believe that another Asian financial crisis is in the making. But the fact remains that, by being relatively small and open, Asian financial markets are vulnerable to shocks. Just earlier this week, the greater realisation that the interest rate upturn in the United States may come sooner and increases possibly larger than expected sent shock waves through equity markets in the region. This is regardless of the comfort offered by the much higher savings rate of economies in the region and the generally low level of indebtedness, of households and corporations. This is also regardless of the increasing inter-dependence within the region, as evidenced by the rapid expansion of intra-regional trade, particularly in final products, and correspondingly reduced dependence of the region as a whole on import demand from developed economies. I have no doubt that Asian financial markets should remain open and, for those less open, continue with financial liberalisation, in order to benefit from the greater efficiency in the international allocation of capital that comes with globalisation.
I am very confident that this Conference will be a great platform to catalyze open discussions among market players on the key issues relating to risk management. It will also provide good opportunities for business networking. On this note, it is my pleasure to declare open the International Risks and Risk Management Conference for Insurance Sector 2010. 4  BIS Review 76/2010

More often than not, there will be a number of possible interest rate paths that might be said to provide a reasonable balance, in view of the uncertainty involved. The results of this trade-off are presented in the Inflation Report in the form of a chart that presents baseline scenarios for the interest rate, the exchange rate, inflation and capacity utilisation in the economy. The formulation of a precise inflation target, our projection for the interest rate 3 – 4 years ahead in time and our desire to achieve a balance between output stability and inflation may perhaps give an impression of excessive optimism with respect to managing the economy and invite a repeat of earlier attempts to fine-tune the economy. But it is important to bear in mind the lessons drawn from the 1970s and 1980s, i.e. high stabilisation policy ambitions may lead to wide fluctuations in the economy, with high and variable inflation. In our conduct of monetary policy, we must not underestimate the uncertainty surrounding the decisions taken. Even if the Bank publishes a forecast for the interest rate, this does not mean that the interest rate will follow the forecast throughout the projection period. Forecasts of inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions. Disturbances to the economy may result in changes in the forecasts. Data revisions imply that the current economic situation is not fully known.
However, I wish to focus on another reason why Akerlof’s insight was never fully absorbed by policy makers and the public: I believe that we allowed the workings of the financial sector to become more and more divorced from key stakeholders such as the legislature, who had the responsibility of enacting regulations governing the financial sector, and the public for whom the media was an important source of information – and so our fate was sealed. Mr. Chairman, clearly Africa was not the source of the financial crisis, but it is being impacted by the crisis and there are many who believe that Africa may well bear the long term costs of the global economic downturn – if the broad gains of the past years are reversed and the productive capacities (e.g. human and social capital) are destroyed due to worsening health and education outcomes. From this perspective, the role of the legislature and the media in ensuring the African governments make the right policy choices in dealing with the crisis will be critical in determining how well African economies weather and recover from the crisis once it is over – as all crises do come to an end.

They depend on the hundreds of examiners who are dedicated professionals working in the public interest. Our examiners fulfill their obligations with considerable care, mindful of the stakes to Main Street when something goes wrong on Wall Street. I am grateful for their efforts. IV. Reasonable expectations  Before concluding, let me offer a broader view of what we at the Federal Reserve expect from prudential supervision. Very briefly, I submit that supervision should be fair, conscientious, and effective. Fair supervision means that the rules are applied consistently across the firms we supervise. We all need to know the rules and follow the same rule book. It also entails a commitment to independence from business or political influence, as envisioned by the Federal Reserve Act one hundred years ago. Conscientious supervision means we must be committed to sustained and, if necessary, radical self-improvement. The Beim report is an example of our willingness to commission and accept self-critical analysis and our commitment to improve. But we cannot stop there. To this end, we will be working with the Board of Governors on its upcoming review of whether the LISCC Operating Committee receives information that is sufficient to reach sound supervisory decisions. One subset of this system-wide inquiry will analyze regulatory capture – specifically, how divergent views are presented to decision makers at the Board. The review is expected to take several months. Effective supervision means tough supervision and demands a focus on large banks that pose systemic risk.
Frozen capital markets threatened even solvent banks. At an early stage, there were fears that the pandemic that hit us in 2020 might also trigger a financial crisis. Three different situations, but one common endeavour for central banks: The financial system had to be protected. At the start of the pandemic, access to market liquidity was narrow, and the price of available capital was disproportionately high. Norges Bank stepped in and provided additional liquidity support to the banks (Chart 2). The purpose was to contribute to smooth market functioning and ensure that the policy rate cuts passed through to the interest rates faced by households and businesses. 3  NORGES BANK  Chart 2 Additional liquidity support during the pandemic  ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  F-loans. In billions of NOK 200  200  150  150  100  100  50  50  0 Jan-20  Apr-20  Jul-20  Oct-20  Jan-21  Apr-21  Jul-21  Ordinary F-loans Extraordinary F-loans  0  Source: Norges Bank  The actions taken build on several important principles:3 First, the risk transferred to the central bank should be as low as possible. If the support schemes are too favourable, we risk undermining the banks’ own motivation to maintain sound credit and liquidity policies. Those who take risks must also be prepared to bear the losses. Second, loans should only be given to banks that are solvent. The central bank’s role is not to help recapitalise banks.

1  Moreover, the most indebted countries should, with a medium-term perspective, reinforce the sustainability of their public accounts. A particular difficulty when designing policy responses in the current context is the extraordinary uncertainty and volatility currently surrounding the global economy, which generates risks of policy miscalculation and disruption to financial markets, and requires policymakers to stand ready to adjust policies depending on how the situation evolves. This is clearly how monetary policy is currently being conducted, with data-dependent decisions being made on a meeting by meeting basis, but this may be more difficult to achieve in the case of fiscal policy, given the longer implementation lags involved. From a more global perspective, economic policy-making is facing the challenge of increasing geopolitical tension. If this trend ends up triggering a scenario of runaway fragmentation, the consequences in terms of trade and financial flows, productivity, inflationary pressures, and ultimately economic activity would be very severe. With this in mind, it is not difficult to conclude that, amid the increasing risk of fragmentation in the international sphere, strengthening supranational policies and institutions, which support international cooperation, is more important than ever. I firmly believe that our multilateral system, with the necessary reforms and adaptations to the new circumstances, remains pivotal to global progress, as has been the case over the last few decades. In this respect, I believe that forums like this one are an example of fruitful international cooperation, insofar as they enhance regional cooperation and dialogue.
I should also note that, from April 1st this year, the new Financial Policy Committee (the FPC) of the Bank will also have statutory responsibility and powers to make the financial system more resilient through macroprudential policies,4 and the Prudential Regulation Authority (the PRA) within the Bank of England will take over from the Financial Services Authority the job of micro-prudential supervision of firms. These functions do not depend on the central bank balance sheet and so, in principle, do not need to be undertaken by the central bank. But they are being put in the central bank for very good reasons, which include, for example, exploiting the synergies with central bank operations and skills, and eliminating the underlaps that arise from separate institutional arrangements. Because they do not necessarily involve the Bank in conducting financial operations, I will say no more about macro- or microprudential polices today. (Else I will still be going at midnight!) In summary, the primary operational policy levers available to the Bank of England to influence the macroeconomic outlook are: setting the price or quantity of money; influencing  4  For more on my views about the FPC see: http://www.bankofengland.co.uk/publications/Documents/ speeches/2012/speech550.pdf  2  BIS central bankers’ speeches  the price and quantity of credit; and the communication of our actions, analysis and views5. Let me unpack these policy operations a little further.

Monetary and credit policies can help provide the foundations for growth and ease the path for necessary real adjustments. But ultimately, the growth of the economy will depend on real factors such as expectations of real income growth and the productivity of UK firms and workers. Households will borrow for housing or consumption if they have expectations of secure real incomes. Firms will similarly borrow if they have expectations of demand for their goods and services. Cheaper loan rates will help that process, but the fundamental drivers will still be those of the real economy. Conclusion The headwinds holding back the UK economy over recent years have been predominately real ones: an ongoing crisis in our main export markets of Europe; the necessity of fiscal consolidation at home; the need for rebalancing of the UK economy towards net exports; and balance sheet repair across all sectors. The weak relative performance of the financial services sector following the crisis has also been a direct drag on output as well as hampering the supply of credit. The central expectation in the February Inflation Report was for growth to resume in 2013, albeit at a relatively modest pace. Patience will be needed. Meanwhile, the Monetary Policy Committee remains committed to supporting the economy whilst aiming to keep inflation low and stable in the medium term, in line with our Remit. Monetary policy can help, even if it can’t solve all the challenges of restoring sustainable real growth. BIS central bankers’ speeches  9
A large-scale materialisation of the risks would entail a significant capital charge at aggregate level, but not so substantial as to jeopardise the stability of the financial system. In any event, close monitoring of financial developments in the sector is required, together with prudent and forward-looking conduct by the banks themselves. The FSR also includes simulations of the impact of an interest rate rise on the economic and financial position of Spanish firms and households, as well as the different tiers of general government, which may be particularly useful in the current context.22 A potential interest rate hike could drive up the percentage of firms under financial pressure. Specifically, within corporate bank financing, short-term and floating-rate loans predominate, and changes in interest rates therefore pass through relatively swiftly. Under a scenario consistent with the Banco de España’s latest projections, where interest rates rise in line with market expectations, firms’ interest expenses as a percentage of gross operating surplus would begin to increase from 2023 onwards to stand, by the end of 2024, 1 pp above 2021 levels. If short and long-term interest rates rise by 100 bp more than envisaged in the foregoing scenario, that figure would rise by a further 1.7 pp in 2024. As for households, an interest rate rise could contribute to their debt repayment capacity deteriorating somewhat.

These short and medium-term challenges must not allow us to overlook the need to address the structural challenges that the banking sector was already facing before the onset of the pandemic and the Russian invasion of Ukraine. In particular, the need for capacity adjustment, as well as the growing competition from technology firms and the potential negative effects associated with climate risks. Lastly, crypto-assets, which are digital representations of value and rights based on distributed ledger technology, are an area of financial innovation that is growing fast. Despite their potential for offering lower transaction costs, greater interoperability and greater competition, and although they are still small and their degree of interconnectedness with the more traditional financial markets is still limited, their rapid development poses significant risks if it is not conducted safely within a regulatory framework that will mitigate the potential risks. These notably include market, liquidity, operational, reputational and, above all, conduct risks vis-à-vis users owing to the lack of transparency and regulation in this field. Bear in mind that an upscale in these markets could pose systemic risks. Therefore, as a matter of urgency and in coordination with the international community, a regulatory framework should be designed that allows us to mitigate and supervise these risks. Conclusion I will finish by recalling that the Spanish economy is immersed in a highly uncertain environment, the structural challenges ahead are enormous, and that the fact that these challenges are closely interconnected signifies that a comprehensive strategy of ambitious and lasting reforms is required.
Nor is devaluation necessary to help make us more competitive, even given the fact that many of our neighbours have seen currency devaluations of between 20 and 80 per cent. Currency devaluation is not the only means to achieve economic adjustment, and the argument that Hong Kong is losing out by maintaining the link makes little sense for such an externally oriented economy. Hong Kong is achieving its adjustment through other variables. Asset prices and the cost of production, particularly in the form of land and rentals, BIS Review 98/1998  -5-  have come down very sharply. Wages are easing. Manufacturers and service providers are increasingly able to lower their costs while at the same time seeking improvements in productivity. It is therefore quite misleading to claim, as many sceptics do, that without currency devaluation Hong Kong cannot be competitive. We have chosen an alternative route towards adjustment, and we consider ourselves fortunate that we have the capacity to make that choice. This capacity comes from the fundamental strengths that make it possible for us to run an effective currency board. These fundamentals can be reduced to four basic, and some what obvious, points. They are so obvious, in fact, that they are too often overlooked in the narrow discussions about the prospects for the link, and it is worth setting them out. First, our ample foreign currency reserves. These are the fruits of strict fiscal discipline, which has produced surpluses year after year, and of prudent investment.

The collapse of the stock market would have enabled them to reap a handsome profit from the futures contracts they had taken out. A few figures will help give some idea of the scale of this attack and the vulnerability of Hong Kong’s markets at the time. We estimate that the hedge funds involved had amassed in excess of $ billion in currency borrowings, at an interest cost of around $ million a day. They also held an estimated 80,000 short contracts, which translated into the following calculation: for every fall of 1,000 points in the Hang Seng index they stood to make a profit of $ billion. If they could have engineered that fall within 1,000 days they would have broken even. If they could have achieved it within 100 days they would have netted $ billion. All they had to do was to wait for the best moment to dump their Hong Kong dollars, to drive up interest rates and send a shock wave through the stock market. August was an opportune time: turnover in the stock market had shrunk to about a third of its normal level; there was bad news as the government announced that first-quarter GDP growth had been negative; and rumours were flying around predicting the devaluation of the Renminbi and the severing of the link between the Hong Kong dollar and the US dollar.