samchain/econo-pairs-v1 huggingface dataset:
However, over a long period of time these errors offset one another and on average good forecasts should therefore not over-estimate or under-estimate the actual events. For shorter periods it may be interesting to study individual forecasting errors in greater detail to try to analyse their causes. But even if such an analysis is valuable it cannot be used to draw general conclusions about the forecasting performance. While accuracy is very important, even more is required for a forecast to be good in a monetary policy context. A good forecast for inflation, for instance, should correspond with the forecasts for other variables. And the driving forces behind the forecasts should be explained in a comprehensible manner. Why does the forecast look the way it does? What are the mechanisms acting as a motor for this development? These qualities are also required for a forecast to function as part of the decision-making base for practical monetary policy. BIS Review 22/2008  3  Consideration to the real economy Another factor to take into account in an assessment of monetary policy is that there may sometimes be reason to deliberately deviate from the inflation target. Normally we focus our policy on attaining the inflation target within two years. This is partly due to it taking time before monetary policy has its full effect. But it also has to do with the Riksbank thereby being able to contribute to a more stable development in production and employment. However, it does assume that the inflation target is not threatened.

It presupposes that the general public has ample opportunity to insight into our activities and that we are regularly  2  BIS Review 22/2008  examined. So assessment is important to us – both from an efficiency perspective and a democratic perspective. However, for the assessment to meet these purposes, there are a couple of factors to be taken into account. What can monetary policy achieve? To begin with, the demands – the actual base for the assessment – should be founded on what monetary policy can actually achieve. Monetary policy is able to secure an inflation rate that is in line with the inflation target over a number of years. It can also contribute to stabilising cyclical fluctuations in production and employment. However, monetary policy cannot achieve a permanently higher level of employment or growth in the economy. Both previous experience and economic theory have shown this to be the case. And this was one of the reasons why it was decided when drawing up the Sveriges Riksbank Act that it would be inappropriate for the Riksbank to have an explicit target regarding, for instance, GDP growth or employment, in addition to the price stability objective. It would then appear natural to assess monetary policy by looking at the way in which the inflation outcome relates to the Riksbank’s inflation target. But there are some factors here too that should be borne in mind. In retrospect One such factor is that efficient inflation targeting by necessity must be based on forecasts of economic development.
The rise in average mark-ups globally since 1980 would, on this calibration, be expected to 1  raise the trade-off parameter in the Golden Rule ( ) from around 0.1 to 0.4. This is a reasonably significant 𝜖  shift in the terms of trade between inflation and output variability. Chart 19 seeks to brings all of these points together graphically; it is an empirically-calibrated version of Figure 1. Point A is the starting equilibrium, before any rise in the (trend and variability) of mark-up shocks, with the policy possibility curve tangent to the policymaker’s loss function. A rise in the (trend and variability) of mark-ups then has three distinct effects. First, an increase in mark-up volatility causes an outward shift in the policy possibility frontier (A to B), calibrated here to be equivalent in scale to the outward shift from the counterfactual simulations. Second, there is the clockwise rotation of the Phillips curve, and hence in the policy possibility frontier (B to C), calibrated to be equivalent to the mark-up rise among firms globally since 1980. And third, there is the shift in the relative weight placed on output stabilisation by the policymaker, calibrated in line with the mark-up shift (C to D). The net effect of increased market power is a significant rise in inflation variability but relatively less change in output variability. Chart 20 uses the same calibration, but looks at the relationship between inflation and interest rate variability.

There are two ways in which the path of monetary policy might potentially be affected to a greater degree by increases in market power. When companies have a significant degree of market power, the level of output produced is likely to be below the social optimum, creating an incentive for monetary policy to try to offset that by running the economy hotter (“inflation bias”). And if market power lowered companies’ investment rates, this could reduce the economy’s neutral rate of interest. Neither, however, at present has a strong empirical basis. To the extent these channels do operate, they reinforce the institutional case for independent central banks charged with pursuing well-defined inflation targets. At the same time, actual inflation across advanced economies has of course been relatively low and stable over recent decades. So while the micro-economic evidence – a secular increase in mark-ups – is striking, it is not easily reconciled with the macro-economic evidence on measured inflation, including on the impact of mark-ups on inflation (for example, Smets and Wouters (2007)). Reconciliation of the two strands of evidence – micro and macro – means that some combination of the following would have to be true. First, the micro-economic firm-level evidence may not accurately describe how economy-wide mark-ups have evolved since the 1980s. Second, other macro-economic factors may have more than offset the impact of rising mark-ups on the behaviour of inflation.
However, such transitory movements should have no material effect on financial conditions or the broader economy. What matters for policy transmission is the predictability that on most days money market rates will be close to the target range set by the FOMC. 13 Of course, if rates were to move substantially outside the target range and those changes were expected to persist, the Fed would take appropriate action to assure that its intended stance of policy is achieved. In addition, as highlighted in minutes to the Committee’s recent policy meetings, an operating regime with a reasonably large positive spread between the IOER and ON RRP rates would support active trading in the funds market like we see today, and would likely prevent the Fed’s involvement in the repo market from growing too large. This would, in turn, lessen the possibility that patterns of financial intermediation could be altered in unanticipated and potentially undesirable ways by the Fed’s actions. Recent changes to the overnight RRP test exercise Now I’d like to return to the ON RRP testing that the Fed has been conducting over the past year, and discuss the changes to the testing exercise that were introduced following the September FOMC meeting. You’ll recall that we began testing ON RRPs in September 2013, when the Committee instructed the Desk to examine how a potential ON RRP facility might work and how it might affect short-term interest rates.

One benefit is that, in limiting the overall take-up but not individual take-up, an aggregate cap should produce a more efficient allocation of usage among counterparties than would a system of individual caps. Further, an aggregate cap should better balance efficient control of money market rates under normal conditions with the risk of a destabilizing surge in use of the facility in times of stress. The reduced risk of a surge in use in a system with an aggregate cap comes from the fact that take-up across counterparties is not perfectly correlated. As a result, an aggregate cap that binds at some frequency can be set below the sum of individual caps that would bind for at least one of the counterparties at the same frequency. The aggregate cap also raises the individual bargaining power of counterparties relative to a system of lower individual caps, since in normal times counterparties can be relatively certain that larger bids at the ON RRP facility will be filled. However, the possibility that the aggregate cap could bind even in only limited circumstances may undermine this effect on bargaining power. The Federal Reserve has been closely analyzing the results of the ON RRP operations conducted under these new testing parameters in order to further its understanding of how an ON RRP facility should be structured during the normalization process. As many market participants anticipated the aggregate cap did bind on quarter end.
Jaime Caruana: Risk management trends and the supervisory structure Remarks by Mr Jaime Caruana, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, at the 31st General Assembly of the Geneva Association, Madrid, 27-29 May 2004. * I. *  *  Introduction & overview  I would like to thank Mr de Castries, Mr Liedtke, and the members of the Geneva Association for inviting me to participate in your 31st General Assembly. As the chairman of the Basel Committee on Banking Supervision, I am honoured to address another organisation that names itself after a distinguished city in Switzerland. It is a special privilege for me to do so here in Madrid, not far from the Bank of Spain. Our organisations may hail from different Swiss cities and different sectors of the financial services industry, yet both organisations monitor trends in risk management and work to encourage advances in that discipline. This is a difficult but enormously important duty for all of us. Financial organisations whether they are insurance companies, securities firms, or banks - compete on their knowledge of their customers. They seek to tailor products and services to each customer’s ever changing needs. To succeed in an environment where products and services must evolve quickly, financial service providers must understand thoroughly the benefits, costs and risks of their current activities, while watching the horizon carefully for future changes that might alter the balance between risks and rewards.

Mr. Singer said that the weak-koruna policy has persuaded Czechs that the central bank won’t allow consumer prices to fall, and removed the risk of a slide into a prolonged period of deflation. Central bankers aren’t worried so much about falling prices as about the threat that consumers and businesses will come to expect prices to continue to fall and will postpones their purchases, weakening economic growth and pushing prices down further. “We were afraid of this problem of postponed consumption and investment,” Mr. Singer said. “But people have realized the central bank is not going to allow a deflationary slide.”  BIS central bankers’ speeches  1  Mr. Singer said that retail sales are picking up, driven by higher auto sales, an indication that consumers aren’t postponing purchases in the expectation goods will be cheaper in the future. He cited a decline in the savings rate as another indication that the risk of deflation has been lessened. The central-bank chief said that while food prices may rise at a slower pace in response to a good harvest, he was not worried about that development because people can’t postpone food purchases. Measured according to an EU standard, the annual rate of inflation in the Czech Republic picked up to 0.7% in August from 0.6% in July, and Mr. Singer said he is confident it will rise to the 2.0% midpoint of the central bank’s target range next year, assuming the eurozone follows a “baseline scenario” of a return to modest growth.
Here the key issue is to avoid that rising long-term unemployment and structurally low investment create hysteresis effects. The second challenge is how to raise potential growth in a durable way. In line with my broad definition of potential growth, recent research has suggested that pre-crisis estimates may have been overstated by effects linked to the financial cycle.2 In other words, after incorporating information on the unsustainable developments in real interest rates, credit growth and property prices that characterised the 2003–08 period, potential output may have been lower than we thought. A return to the status quo ante may not therefore be enough to restore high levels of sustainable employment. These challenges are interrelated because, to the extent that we can achieve an upward shift in the future growth potential, it will affect growth expectations today. This might induce firms and households to frontload consumption and investment decisions, thus helping lower the risk of hysteresis effects. And vice versa, if there is no prospect of higher growth in the future, we could fall victim to self-fulfilling negative expectations. For this reason, I see policy action on both fronts as urgent. And there are three policy areas that I see as relevant: monetary policy; financial sector repair; and, most importantly, structural reforms. How can we raise potential growth? Monetary policy We know that monetary policy can help buy time for necessary structural measures to be implemented. Going beyond that, it may seem strange to include monetary policy in a discussion of potential growth.

Fiscal policy is necessarily constrained by high debt levels. And while the private sector undergoes a period of deleveraging, we cannot – and should not – expect to see a return to the debt-fuelled aggregate demand growth of the past. This means that to revive growth we have to look mainly to the supply capacity of the economy – that is, its potential growth. And here the situation is not encouraging. According to the European Commission, potential growth in the euro area has fallen from 2.2% in 2000–07 to 0.9% in 2008–12. We need to do everything in our power to reverse this situation, and what I would like to discuss in my remarks today is how we can achieve this. Why has potential growth fallen? Let me start by briefly reviewing why potential growth has contracted during the crisis and the challenges this creates for policy makers. In doing so, I will use a broad definition of potential growth, namely the economic activity that can be sustained by means of the available production factors – capital, labour and technology – without engendering inflationary pressures and/or fuelling asset price boom-busts. Starting with capital, investment has been one of the main casualties of the crisis, with total investment shrinking by more than 15% in the euro area since its peak in 2008. This is of course to some extent cyclical, as well as reflecting a necessary correction of previous overinvestment in the construction sector.
This question is crucial today because the shocks that have hit the euro area economy in recent years have affected both demand and supply, making the main drivers of inflation harder to identify. We have faced both a series of external supply shocks[6] and a deterioration in the terms of trade which have pushed up costs for firms and weakened demand. This has resulted in an extraordinary rise in energy and food prices, especially after Russia’s invasion of Ukraine. Together, energy and food currently directly account for more than two-thirds of headline inflation (Chart 1). Chart 1 Contributions of components of euro area headline HICP inflation (annual percentage changes and percentage points contributions)  Sources: Eurostat and ECB calculations. Notes: NEIG stands for “non-energy industrial goods”. The latest observation is for October 2022. At the same time, the consumption items benefitting most from the reopening of the economy have made an increasingly relevant contribution to core inflation over time (Chart 2). The combination of this positive pent-up demand shock, pandemic-related supply disruptions and soaring energy prices has provoked a much faster and stronger pass-through of cost pressures, especially energy costs, into domestic inflation than in the past. Indeed, items with a high share of energy in direct costs currently account for around half of the inflation in services and non-energy industrial goods.

In the justification for its new strategy, the Federal Reserve notes that the level of the policy rate that is compatible with maximum employment and 4 For a more detailed account, see for example, Jansson (2020). 5 It is difficult to know exactly where this bound lies, but my guess is that, in Sweden, it is slightly lower than –0.5  per cent, as the Riksbank’s repo rate was for a period, and it probably also depends on how long the repo rate remains at negative levels. 4 [17]  long-term price stability has fallen relative to its historical average. The policy rate will therefore be limited by its lower bound more often than has been the case in previous periods. In order to anchor long-term inflation expectations at 2 per cent and prevent them from falling below this level – which would make the lower limit binding even more often – it has chosen to specify the target as an average of 2 per cent. This makes it clear that ‘bygones’ are not ‘bygones’: if inflation has been below the target for a period, this must be compensated for by inflation then being above target for a period.6 In turn, as I have just mentioned, the ECB has moved on to a symmetrical target of 2 per cent in the medium term. In practice, this means that the target has been raised slightly, as previously inflation should have been “below, but close to, 2 per cent”.
i  Global Official Institutions Conference, 22 June 2023 Building together a future-proof banking and payment sector in Europe  Speech by François Villeroy de Galhau, Governor of the Banque de France  Page 1 of 6 Ladies and Gentlemen, I am pleased to be with you for this Global Official Institutions Conference organised by BNPP, and I extend my warmest thanks to Jean Lemierre, Chairman of BNPP’s board of directors, for his invitation to give this speech. Facing the obvious turbulence and challenges of the last 18 months, we come here from different perspectives. Let me focus nevertheless on some common features: I will take the European view, and not only the French one. And I will focus on two delicate interactions between public authorities and private sector financial institutions: -  the first one is about the recent past: why did the euro area escape the banking turmoil born in the US and in Switzerland, and can we be safe enough? (I)  -  the second one is about the next future: why should Central banks stand ready to issue a digital currency? (II)  I. Banking turmoil: three blessings and a funeral I spoke after SVB’s failure of ‘Three blessings and a funeral’. Let me start with the funeral, at least the one that we can welcome, but which, unfortunately, is not final. It should be the condemnation and the funeral of mismanagement.

This deceleration will clearly have some dampening effects on euro area net exports. The euro area is a large economy where exports of goods and services amount to around 17% of GDP only. Economic activity in the euro area is therefore determined mainly by domestic factors. Overall, the fundamentals of the euro area remain broadly favourable. While, as recently published data show, real GDP growth slowed somewhat in the second half of last year, the level of business and household confidence has remained high, supported by, inter alia, high degrees of capacity utilisation and ongoing unemployment declines. Moreover, real income in the private sector will benefit from lower oil prices and from the reductions in direct taxes in 2001. Hence, while downside risks to real GDP growth exist, growth is very likely to continue at a reasonably robust pace. Developments in the euro area bond markets are in line with this outlook for economic activity. Moreover, inflationary expectations implied by bond yields confirm that the financial markets expect current levels of consumer price inflation to be temporary, and price stability to be maintained in the medium term. This assessment may also have been reinforced by the recent moderation in oil prices and the movement of the euro exchange rate in the period since the end of October 2000. BIS Review 8/2001  1  Lower oil prices and the appreciation of the euro have already produced some effects on price developments.
Such an environment will also make the process of adjustment and economic transformation easier. In this respect, I believe that we have the right monetary framework to best 2  BIS central bankers’ speeches  achieve this. The BOT’s inflation targeting framework has served us very well since its adoption over 10 years ago. Apart from serving as an anchor for macroeconomic stability, the BOT can also undertake steps, or act as a catalyst for the necessary changes, that will serve to enhance Thailand’s competitiveness and augment economic adaptability. Most directly, the BOT can strive to enhance the effectiveness of the financial sector in serving as intermediaries of capital. Our current strategy is to broadly deliver tangible improvements in four key dimensions. First, encourage financial innovation and the expansion of available financial instruments. Second, broaden the choice available to firms and households in terms of financial services. Third, reduce the cost of these financial services. And finally, improve access to them. To this end, the BOT has embarked on a multi-pronged approach that involves a number of strategic plans. Chief and foremost is the second Financial Master Plan. This plan, which takes into account major global developments such as regional integration and global regulatory reform, will further this vision of a modern and inclusive financial sector landscape. At the same time, we are pursuing ways to improve financial system infrastructure, including through upgrades to the payment systems to promote more efficient settlement of private sector transactions.

Complementing these efforts is our development of the Capital Account Liberalization Master Plan aimed at facilitating and encouraging more outward investment by Thai residents in foreign assets. Apart from the sizeable diversification gains to be had, a more streamlined capital account and foreign exchange regulatory regime will help to boost financial market development and reduce costs for the private sector. Finally, in recognition of the fact that the full benefits of improvements in financial services cannot be realized without adequate readiness on the part of consumers, we have recently launched the Financial Consumer Protection Center to provide financial education to the public. In all this, it must be stressed that the BOT can only do so much. Effective upgrading of Thailand’s competitiveness and lifting our level of productivity requires strong commitment from all segments of the economy. A common vision among all stakeholders is necessary, especially when it comes to implementing tough structural reforms. The BOT will strive to be an active participant in pushing forward the national agenda on reforms, particularly on issues that involve the public sector, to upgrade the efficiency of our economy. Let me end by thanking the German business community for the substantial contribution that you have made to our economy and I very much hope to see the mutually beneficial relationship between our countries continue to blossom into the future. Thank you. BIS central bankers’ speeches  3