samchain/econo-pairs-v1 huggingface dataset:
If he were to summarize this talk he might suggest a title like “Knowing Your Destination is a Good Start in Getting Where You Are Going” or some other derivation of what I believe is his actual quote: “You’ve got to be very careful if you don’t know where you are going because you might not get there.” When setting monetary policy, it is very important to have a clear idea of where you want the economy to go. And fortunately, there is now much more transparency about the Federal Open Market Committee’s (FOMC’s) expected destination, because the FOMC releases its long-term projections for inflation and unemployment. Unfortunately, however, actually reaching our desired destination will prove challenging and involve choices, as I will discuss this evening. At our January meeting, the central tendency of the FOMC members’ long-run projections for unemployment was 5.0 to 5.2 per cent, and for inflation (measured by the personal consumption expenditures price index or PCE) was 1.7 to 2.0 per cent. At present, both unemployment and inflation diverge significantly from these longer-term goals, with the March unemployment rate at 9.7 per cent, and core PCE inflation over the past year at 1.3 per cent. In such circumstances, one might think that the current path of monetary policy would be particularly straightforward. Unfortunately, just knowing your destination doesn’t get you there. To reach your destination you need to know how you want to get there.

In banking, capital buffers were increased, liquidity requirements were introduced, and caps placed on leverage under a new Basel III accord. In the derivatives markets, requirements were put in place for trade reporting, central clearing, and margining. To tackle the too-big-to-fail problem, global systemically important financial institutions, or GSIFIs, were identified and subjected to higher loss absorbency requirements, more intensive supervision, and resolution planning. Implementation of the reforms – especially Basel III – progressed well, driven by a broad-based consensus on preventing a repeat of the Global Financial Crisis. The generous timelines for implementation allowed industry to adjust to the new regulatory landscape. It was only last year, in 2027, that we achieved full implementation of the final component of the Basel III reform package – the output floor. Regulatory evaluation and adjustment (2017 to 2020) During the second phase, from 2017 to 2020, the focus turned to evaluating the effects of the regulatory reforms. There was growing feedback that some reforms had unintended consequences, some reforms were at odds with others, and that the cumulative impact of the reforms had dampened economic growth. A series of reviews was undertaken during this period to assess both the effectiveness and effects of various reforms. The reviews largely affirmed that the benefits of the reforms, in terms of reducing the risk of financial crisis and its consequent economic impact, far outweighed the costs. In fact, controlling for other factors, there was little evidence that the reforms resulted in any general deterioration in the availability or pricing of credit.
Executive Director Jan F. Qvigstad will give a more detailed presentation of the characteristic features of periods in price history that do not follow the norm – periods of high inflation and strong deflation. Once a norm has been established, the next question might be: What would the future look like if we make projections on the basis of what we know from history? Two variables of special interest for economists are GDP and consumer prices. One way to make a projection is to extend trends in historical developments. If economists in 1905 had had access to today’s statistical concepts and techniques, they might also have performed exercises such as this. Let us imagine that they did just that, and that they wanted the answer to the following question: What will be the level of prices and real income in Norway when the country’s citizens commemorate the dissolution of the union with Sweden in 2005? From our position in the present, we can say with some certainty that they would have been considerably off the mark. Looking back, it is also easy to understand why. In 1905, prices had remained approximately unchanged for several decades. The krone’s precursor, the speciedaler, and then the krone itself had been pegged to silver and gold standards since 1842. These systems provided a fixed nominal anchor for the economy and for prices. This was also the case for several of our trading partners. From 1875, Norway was also a member of the Scandinavian currency union.

Lastly, it is an indicator of underlying inflationary pressures – something that is indisputably necessary. It is possible, indeed, that globalisation reduces the sensitivity of inflation to domestic demand owing to the possibility of increased use of external supply. This leads to a degree of decoupling of the capacity utilisation rate and the level of inflation. Under these circumstances, Phillips curves flatten and the monitoring of instantaneous inflation is no longer sufficient to detect underlying pressures. Monetary analysis therefore provides an indispensable insight into inflation developments. The second issue concerns future developments in the world financial system. We are honoured to have among us today high-ranking policymakers and experts from both socalled industrialised countries and emerging economies. It seems clear that not everyone shares the same vision or the same approach to the processes of liberalisation and financial innovation. Yet our economies are increasingly interdependent and our financial markets ever more interconnected. It seems that the time has come to ask how, in the future, financial systems organised and regulated on such different bases and principles can co-exist, and what the systemic and macroeconomic consequences of this diversity will be. At a time when we are all reflecting on the role and future of the International Monetary Fund, this, it seems to me, is a major challenge that could be taken up by this institution. It remains, Ladies and Gentlemen, for me to hope that this symposium gives rise to fruitful exchanges and a deeper understanding of the links between globalisation, inflation and monetary policy.
Somewhat unexpectedly, it has also turned out that the CCP provides a comprehensive national picture of total outstanding student loan balances and delinquency rates that heretofore did not exist. It was in a Quarterly Report, for example, that we first reported that student loan debt exceeded credit card debt, in early 2010. Our findings helped bring the surge in student debt and delinquencies to the attention of the public. Our research also highlighted its potential implications for consumption growth, showing a strong association between the increase in student loan debt and the decline in mortgage and auto loan origination rates over the past few years. Coming back to the broader issue of data innovation, it is interesting to note that dataset merges have been behind a growing number of important academic studies and research findings in recent years. While showing how the value of datasets can be greatly enhanced by linking them, these studies underscore the need for creative thinking to maintain anonymity and representativeness of the matched sample. We are currently pursuing various ways to enhance the value of the Consumer Credit Panel further by linking to property deed records, employer payroll records, small business credit data, and student college records. The CCP shows how existing data – in this case credit reports – can be re-purposed to serve new public policy and research uses. But sometimes existing data sources just can’t provide the answers we need, and in those cases data innovation requires creating something completely new.

The sampling approach generates the same entry and exit behavior as present in the population, with young individuals and immigrants entering the sample and deceased individuals and emigrants leaving the sample each quarter at the same rate as in the U.S. population. As a result, for each quarter starting in 1999, the panel constitutes a representative cross-section of the population of borrowers. Moreover, once the random sample of individuals is identified, we then include the credit records of all individuals living at the same address, so the panel can be used to analyze new loan originations, balances, and delinquencies at the household level. Consumer debt traditionally has been measured at the individual level, but most economic decision making is done at the household level. In fact, consumer income and assets are commonly measured and analyzed at the household level. For studying household economic behavior, and in particular for understanding life-cycle household finance, it would similarly be more useful to examine debt and credit aggregated at the household level. It may also be important to consider the distribution of debt within households. Beyond the ability to link individual consumer and household-level loans over time, the panel improves on typical loan-level datasets by linking multiple loans to the same consumer. Thus, at each point in time, one can see whether the individual holds multiple first mortgages or a combination of first and second mortgages while at the same time holding various types of non-mortgage debt.
Consequently it is the countries participating from the start that will be able to influence the conduct of policy and the organisation of activities in the new European central bank. Target The conduct of a single monetary policy calls for a single system with which to handle the associated payments. TARGET, the payment system that is now being built up, will link up all the national systems. A payment from, say, Stockholm to Milan will normally be executed in a matter of seconds, whereas at present it often takes a day or more. TARGET's main purpose is to enable the ECB to conduct monetary policy but it also amounts to the establishment of a new expressway for commercial transactions. The extent to which banks and other companies use the system will probably depend on the price. What this will be is not yet clear but costs are to be covered in full. All the national central banks in the EU area will be BIS Review 41/1997  -7-  entitled to join TARGET, whether or not they are participating in the euro area. There is a significant risk, however, that countries outside the latter area will have more limited possibilities of using TARGET, for instance due to restrictions on intra-day euro credit, which is important for countering fluctuations in payment flows. One of the matters discussed is that outsider banks should close the system at an earlier hour. The Riksbank has acted forcefully to oppose this threat of discrimination.

During this period no one is to be compelled to use euro, though this will be encouraged. Kronor and euro will both have the status of legal tender, so we must be prepared to handle them both during this period. But the discussion of this question should continue. Responsibility for information The retail trade report considers that society must be responsible for information about the new currency system. At the same time the Ministry of Interior and others consider that information at points of sale, for example, is primarily a business responsibility. This makes me somewhat uneasy. I believe we must all be prepared to accept an additional responsibility for information about these matters. Otherwise there is a risk of people feeling they are getting insufficient guidance, with an increased risk of the changeover being arduous for everyone. At the Riksbank we will try to do our bit. Brochures about the new means of payments will be distributed, possibly accompanied by ready-reckoners for the conversion rates. Our Payment System Department is working on this. Price information Retailers will be obliged to work for a period with some form of double pricing. The practical arrangements for this are mainly a matter for the retail trade and consumer interests. Rounding In Sweden we have grown used to having the total sum rounded to the nearest 50 öre.
There is some concern about mis-measurement of the level of demand in the economy. But compared to the past, changes in ONS methodology and improvements in the measurement of financial sector output in particular, should mean that the very large revisions to growth in the past, which prompted large revisions to views of inflationary pressure, now seem less likely. 9 And, in the present context of a fall in output of 6.2% in the six quarters to the third quarter of 2009, there seems little doubt that a sizeable output gap has opened up. Nevertheless, the MPC indicated in the last Inflation Report that we expect GDP data for 2009 to be revised up somewhat in due course, and that was taken account of in the forward projections. A second source of uncertainty stems from the specification of the output gap. The way in which potential output is estimated in BEQM reflects largely shocks to supply (the capital stock and labour supply). However, arguably for judging inflation pressure after some shocks this is not necessarily the right approach. 10 For example, a rise in commodity prices, or a fall in the exchange rate, may have a long-run impact on supply, by making some supply uneconomic and bringing about some capital scrapping. This is captured in our framework. In the short term, the increases in firms’ costs, leads to both a fall in output and a rise in inflation pressure. This fall in output does not indicate a negative output gap.

This kind of effect was reflected in the MPC’s judgment in the February 2010 Inflation Report that effective supply capacity might at the moment be reduced below  9  Nelson and Nikolov (2005) suggest that in the 1980s the average real-time output gap measure was over 5 percentage points below the average final measure, of which more than 4 percentage points was due to revisions to the level of output. 10  Discussed in detail in Neiss and Nelson (2005). 11  Greenslade, J and Parker, M (2008). 4  BIS Review 27/2010  the estimate which would result from simply looking at trends in capital, labour and total factor productivity. The MPC is prompted to look at this type of explanation against the background that at present CPI inflation (adjusted for estimates of the impact of the VAT change and of higher oil prices) is rather higher than might have been expected given the sharp fall in output. But the possible explanations discussed above suggest that the output gap has recently not been as large as simple models might suggest, and therefore higher CPI is less surprising. One reason for thinking that this effect may be pertinent is that indicators of spare capacity (Chart 3 shows one example) have fallen by less in response to the sharp fall in output than might be expected. But it is also probably true that these surveys are more difficult than usual to interpret in the wake of very large shocks to demand.
14  BIS Review 149/2007  Chart 17: UK wholesale M4 growth  Chart 18: 10-year rolling averages of UK broad money growth and inflation  % change on a year ago  % average annual growth 20  40 35 30 25 20 15 10 5 0 -5 -10 1987  1990  1993  1996  Source: Bank of England  BIS Review 149/2007  1999  2002  Broad money 15 10 5  CPI  0 1880  1900  1920  1940  1960  1980  2000  2005  -5  Source: Capie, F and Webber, A (1985), “A monetary history of the United Kingdom, 18701982”, and ONS. 15

This combination of factors put upward pressure on asset prices and narrowed credit spreads and risk premia, and this in turn encouraged an increase in leverage across the financial system. This dynamic both fed and was fed by a wave of financial innovation. As the magnitude of financial resources seeking higher returns increased around the world, products were created to meet this demand. Financial innovation made it easier for this money to flow around the constraints of regulation and to take advantage of more favorable tax and accounting treatment. The U.S. financial system created a lot of lower quality mortgage securities, many of which were packaged together with other securities into complex structured products and sold to institutions around the world. Many of these securities and products were held in leveraged money or capital market vehicles, and financed with substantial liquidity risk. And yet, by historical standards, the overall level of risk premia in financial markets remained extraordinarily low over this period. The structure of the financial system changed fundamentally during the boom, with dramatic growth in the share of assets outside the traditional banking system. This non-bank financial system grew to be very large, particularly in money and funding markets. In early 2007, asset-backed commercial paper conduits, in structured investment vehicles, in auction-rate preferred securities, tender option bonds and variable rate demand notes, had a combined asset size of roughly $ trillion. Assets financed overnight in triparty repo grew to $ trillion. Assets held in hedge funds grew to roughly $ trillion.
We have eliminated one-year liquidity, and we have also phased out six-months liquidity. The decisions we took last week take precisely into account, through three fine tuning operations in the last quarter, this progressive phasing out and its impact on liquidity. Financial Times: Where do you think we are in this crisis? It’s a difficult question. I mean, if I’d asked Roosevelt in 1935 he would have had a hard time answering the question too… Jean-Claude Trichet: I guess so, yes. I would say that the correct response is that we are in a situation where central banks in particular, and also other authorities, have to remain alert and have to know that we are in an uncertain universe. We always have to be prepared for new challenges that can not necessarily be foreseen and that might be in some respect unpredictable. We have permanently to be in a state which I call credible alertness. Financial Times: How close did the euro area come to disaster in May? Jean-Claude Trichet: No, I don’t think that the euro area was close to disaster at all – seen from inside. I know how Europe functions. I know how the constellation of authorities functions, at the level of the various nations and at the level of the European institutions,. Seen from the outside, I would say that it’s always difficult for external observers to judge and analyse correctly the capacity of Europe to face up to exceptional difficulties.

Next January we will be 17, with Estonia joining. This highlights the challenge of permanently strengthening and deepening the governance of the euro area, with new economies coming in. Financial Times: Before we talk about governance, let me ask you some specific questions about the crisis management measures. How are you going to reduce the dependence of the likes of Greece, Portugal, Spain, Ireland on extra liquidity provided by the ECB? Jean-Claude Trichet: As you know, the European economy relies very much in terms of financing on commercial banks. So it’s not surprising that our own “non-standard measures” concentrate much more on bank refinancing than on intervening in markets, in comparison with the Fed. As markets gradually stabilise, our non-standard measures, which are fully consistent with our mandate and, by construction, temporary in nature, will continue to be  BIS Review 115/2010  1  progressively phased out. So we are accompanying the market as it progressively goes back to normal. But, as I said already, it is a process which takes time. Financial Times: Do you have in mind, though, a need to phase out “non-standard” refinancing and do you have a sort of time horizon for this? Jean-Claude Trichet: We of course have to consider all those measures as transitory. They are there to cope with a situation which is abnormal – to help correct those markets that are dysfunctional and thereby help restore a more normal transmission mechanism for our monetary policy.
Despite this, one could see that the support measures had had the effects on risk premiums and housing prices I described above; the risk premiums were lower than before the pandemic and housing prices had started to rise clearly, after falling during the start of the pandemic.27 It is not possible to say with certainty how the economy would have developed if we had not decided in November 2020 to extend and prolong the asset purchase programme. As the pandemic still had a significant impact on economic activity and contributed to market uncertainty, continued support measures were justified. However, the financial markets were functioning well and the yield curve was low and flat. The asset purchase programme that we had already decided and which was due to run until mid-2021 seemed, in my view, sufficient to deal even with increasing uncertainty.28  Rapid rise in inflation and a reversal of monetary policy 2022 Inflation has risen rapidly this year and is now far too high. The Riksbank has therefore raised the policy rate, and other interest rates have followed. The higher interest rates mean that the value of the assets we have purchased falls and that the Riksbank will report a large financial loss this year  25  Many central banks supported the markets through asset purchases during the pandemic. Norges Bank is one of the few exceptions.

The Eurosystem is primarily targeting market participants with market-making obligations and is monitoring the securities lending activities closely so as to ensure the ongoing effectiveness of the arrangements. In September 2017, securities on average worth € billion were lent out by the Eurosystem, of which around € billion were lent out against cash as collateral. For further 9 / 10  BIS central bankers' speeches  details please see the section Securities lending. 8 See Corradin, S. and A. Maddaloni (2017), “The importance of being special: repo markets during the crisis”,  ECB Working Paper No 2065. The authors study the case of ECB SMP purchases of Italian sovereign bonds in the second half of 2011. The SMP portfolio was strictly buy-to-hold and purchased securities were not lent out. 9 See D’Amico, S., R. Fan and Y. Kitsul (2014), “The scarcity value of Treasury collateral: Repo market effects of  security-specific supply and demand factors”, Finance and Economics Discussion Series Paper No 2014-60; and Jordan, B.D. and S.D. Jordan (1997), “Special Repo Rates: An Empirical Analysis ”, The Journal of Finance, Vol. 52(5), pp. 2051-2072. 10 See Cœuré, B. (2017), “Bond scarcity and the ECB’s asset purchase programme”, speech at the Club de  Gestion Financière d’Associés en Finance, Paris, 3 April. 11 One should note here the difference between the development of repo funds rate and the average specialness  premia after our decision to also accept cash as collateral in securities lending. While the former stabilised, the latter continued to increase.