samchain/econo-pairs-v1 huggingface dataset:
Now, if you read page C3 of today’s Wall Street Journal, specifically the article titled “Watchdog Warns of Risks in Markets” about the risks of a repeat of the bond market turmoil of October and concerns about market stability as seen through the eyes of the Office of  1  The FOMC’s “Policy Normalization Principles and Plans” released on Sept. 17 is available at www.federalreserve.gov/newsevents/press/monetary/20140917c.htm. 2  Over the past 15 years, the U.S. long rate has averaged about 40 basis points higher than the German long rate. Since January 2013, the yield spread has widened by 110 basis points to about 1.50 percent. Over the same period, German 10-year inflation expectations have dropped from 1.9 percent to 1.0 percent, or 90 basis points. U.S. 10-year CPI inflation expectations have dropped from 2.3 percent to 2.2 percent – just 10 basis points. So it is worth noting that the drop in German inflation expectations relative to U.S. expectations can account for most of the widening of the yield spread between these two sovereigns. For investors who measure performance in terms of nominal returns or returns against nominal indexes, however, the currently widened spread is relatively attractive. BIS central bankers’ speeches  1  Financial Research (a bureaucracy of some 225 people and growing, created by the DoddFrank law), you would have noted the following sentences: “A reduction in securities that are available to lend against in financial markets – such as Treasury bonds and asset-backed securities – also is fueling...volatility.

It takes very significant decisions, which made it an extremely attractive proposition. How do you explain the arrival of people like you or Christine Lagarde, who have a different profile to the one that ECB Executive Board members have traditionally had? I don’t think anything was predetermined or premeditated. Members of the Governing Council have different profiles and each of them contributes according to their experience. I contribute my knowledge of the European economy and the financial system, and my experience taking decisions when the Spanish economy was at its most delicate moment. What role does politics play in the ECB? The 25 members of the Governing Council don’t always agree, although many of the decisions we take are unanimous. There are those who think that the situation requires further measures, and others who think we have already gone too far. We look for a consensus. The decisions are very democratic – one Governor, one vote – but actually taking a vote is an exception, not the rule. In recent months there has been very strong, unprecedented public criticism. I’m not at all concerned by the fact that there are differing views, that’s healthy and it’s normal because there are 25 of us. But what has been happening in recent months has not been very helpful. It hasn’t undermined the effectiveness of the September package of measures, because it went ahead as planned, but it’s much better to be united. We are a collegial institution and once we have reached an agreement, everyone should defend it.
Under Pillar II, supervisors will assess the integrity of banks’ internal economic capital models - focusing on aspects that are not well-captured in the Pillar I framework, such as the firm’s correlation assumptions within and across portfolios and the rigor of its stress testing programs. Finally, under Pillar III, supervisors will seek to ensure that accurate information about risks will be disclosed by banking organizations. Areas of possible concern with Basel II Procyclicality While I have emphasized the various benefits of Basel II for effective supervision and the preservation of financial stability, there clearly are some possible downsides of the new approach. Concerns have been raised that the adoption of the new Accord will have some destabilizing effects on the international financial system, and emerging market economies in particular. Chief among these is the concern that Basel II will amplify procyclicality as Basel II adopters severely tighten credit standards in response to rising capital requirements in the event of deterioration of credit conditions. We do expect that minimum capital requirements will rise and fall in response to changes in the risk of a bank’s activities, just as the internal economic capital models currently used by banks reflect changing risk exposure by changing capital levels. By itself, this will mean that, even with some changes the Basel Committee made over the years to lessen the effect, some procyclicality still remains.

The original Basel Capital Accord was itself a landmark event, revolutionary in providing a common capital assessment approach, now used by over 100 countries. However, it has obvious limitations that have become more significant over time. It has become less and less reflective of the risks of our largest organizations, and, accordingly, has become less and less integral to our ongoing supervision of them. Basel I, as we all know, includes such shortcomings as: a) its failure to recognize differing credit quality within the same general asset type; b) its varying the capital charge with the credit exposure’s legal form, such as whether it is on or off balance sheet; and c) its simplistic approach to risk transference and credit risk mitigation. More generally, Basel I was not structured to keep pace with the rapid rate of financial innovation that we have seen in internationally active banks. It clearly has created incentives for capital arbitrage, with banks able to structure transactions with the primary goal of minimizing regulatory requirements without a commensurate reduction in risk. Similarly, it has resulted in distortions in bank activity, by creating a tax on certain activities while understating the risk for others. BIS Review 35/2005  1  These have combined to make the regulatory capital metric less informative to investors, supervisors and counterparties, and have eroded the principle of adequate risk-based capitalization that the Basel Accord was designed to promote.
Low interest rates and high inflation benefit those who already have debt, that is borrowers and owners of real 2/4  BIS central bankers' speeches  assets, properties, shares, etc. A consistent monetary policy ensuring price stability will in fact also strike a reasonable balance of interests of these groups. However, monetary policy ultimately safeguards the interests of the most vulnerable households most affected by high inflation. Currently, we can see that lending to individuals and businesses is ongoing. Mortgage lending, our top priority, is growing at a record pace. Lending rates throughout last year and in the first half of this year were influenced by the Government’s subsidised mortgage programme. The Government’s support for housing lending has by now become more targeted. It has to be targeted for us to avoid a situation where accelerated growth of property prices (their growth in the primary market was accelerated precisely by the subsidised programmes) will continue to reduce housing affordability for households. Mortgage rates are slightly higher now than at the time of the subsidised programme, but their growth over the same period is still below inflation. This is due to the fact that long-term rates are primarily shaped by inflation rather than a current key rate. Banks are aware that we will return inflation to target, which is exactly what they are guided by when formulating their interest rate policy. Therefore, there is no contradiction between the affordability of mortgage loans and the tightening of monetary policy currently needed and that we are implementing.

On the cusp of the pandemic, inflation expectations had just started to go down as we saw them approaching 4%. The pandemic derailed that trend. Inflation expectations this year have grown drastically to a five-year high. What does that mean in practice? It means that people rush to buy everything before prices grow, and are taking out a lot of loans. And that further fuels demand and inflation. Whereas some central banks can afford to take a wait-and-see stance to adjust to demand — thanks to the consumer behaviour shaped by the expectations that price growth will stop, we cannot afford that policy. Conversely, if we miss the right moment to make a prompt monetary policy response, we will then have to raise the key rate even more. Our own experience and some countries’ history prove that. We are in a situation similar to that in the US and Germany in the 1970s and 1980s. The Bundesbank moved to raise its interest rate right away, but the Federal Reserve maintained its accommodative policy for a long time on expectations that the crisis would pass. As a result, while Germany saw a quick drop in inflation and an economic rebound, the US went into stagflation, and the Fed was forced to conduct an extremely tight policy, the consequences of which were felt for many years. Food prices are soaring on the back of a disappointing harvest, a rise in global food prices and in labour costs in agriculture.
Is there, for example, a risk of a situation arising where Norges Bank tightens monetary policy to achieve the inflation target, while at the same time the central government authorities increase the use of petroleum revenues (more than implied in the fiscal policy guideline) in order to increase employment and reduce unemployment? 2  4  Report 29 (2000-2001) to the Storting: Guidelines for economic policy. BIS Review 50/2002  There are various factors that can prevent the interplay between monetary and fiscal policy from 3 functioning. Interplay functions well when the decision-making bodies are conscious of how one body’s decisions influence the decisions of the other. Unless this fact is recognised, a decision will not produce the result that was planned. The economy may move in a very undesirable direction, with 4 high interest rates, sluggish economic growth and deterioration in the state’s financial position. However, even without continuous coordination, a fairly good result may be achieved if fiscal policy 5 acts as “leader” and monetary policy as “follower”, to use expressions taken from game theory. The authorities determine fiscal policy knowing how monetary policy will react. Today’s flexible inflation targeting establishes a firm framework for monetary policy and provides clear guidelines on how monetary policy is to respond in different situations. The fiscal policy authorities can internalise the monetary policy response pattern. This is only natural, since the mandate for monetary policy was laid down by the Government and the Storting.

Implementation of monetary policy • If it appears that inflation will be higher than 2½ per cent, with unchanged interest rates, the interest rate will be increased. • If it appears that inflation will be lower than 2½ per cent, with unchanged interest rates, the interest rate will be reduced. • It is just as important to avoid a rate of inflation that is too low as it is to avoid a rate that is too high. Fafo og Makt- og demokratiutredningen 6. september 2002  The mandate implies that the interest rate must be adapted to the outlook for the Norwegian economy. If it appears that inflation, with unchanged interest rates, will be higher than 2½ per cent, the interest rate will be increased. If it appears that inflation, with unchanged interest rates, will be lower than 2½ per cent, the interest rate will be reduced. This orientation of monetary policy will normally also contribute to stabilising production and employment. Monetary policy functions with considerable and variable lags. The current inflation rate does not provide sufficient information to determine the level at which interest rates should be set now. Our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years. Two years is therefore a reasonable time horizon for attaining the inflation target.
Insured depositors might not have lost that much - although this is questionable - but the situation for borrowers might have been serious if they had been forced to repay their loans early. Given the state of the Norwegian economy at that time, finding a new bank willing to extend sufficient credit would no doubt have been difficult - we would most probably have experienced a severe credit crunch that deepened the recession8. The main purpose of the rescue operations was to prevent such a scenario from becoming reality. Banks receiving a capital injection from the government were able to continue their normal bank lending and other banking operations. Empirical studies indicate that the credit conditions of firms borrowing from these troubled banks were no worse than for borrowers at non-crisis banks.9 In 1994, the government started to sell its shares in the banks. At present the government has a substantial share in only one of the three banks it took over during the crisis. The two others are now subsidiaries of a Danish and a Nordic banking group respectively. Fears of a foreign take-over, also of the largest commercial bank, has - at least so far - led the government to opt for remaining an important owner. When the government as part of a crisis resolution steps in as an owner of last resort, the intention is usually to get out of this position once the bank has proved to be profitable again. This is probably  4  Cf. Kane and Klingebiel (2002).

This nice circular definition kept academics, bank regulators and central bankers equally happy until the moment when financial innovation started blurring the distinction between money and other financial assets, and securitisation began blurring the distinction between financial intermediation and financial market operations. The proliferation of derivatives, financial futures and the like added to the confusion between balance sheet and off-balance sheet items. The result is that it is becoming increasingly difficult to identify banking on the basis of the old equivalence of “banking liabilities = money supply”. This has now been recognised in the sweeping deregulation of banking activities affecting the whole of western Europe and, though more cautiously, also the United States. In some cases this has gone so far as to allow the emergence of consolidated banking and insurance activities. BIS Review 16/1997  -5-  Second, in a shorter Hungarian perspective, banks in Hungary have a head start on other financial intermediaries in collecting the financial savings of households and of the enterprise sector. Admittedly, Hungary badly needs the large-scale development of life assurance companies, pension funds, mutual funds and the like, i.e. all those institutional investors which can channel savings towards equity investment. But this takes time, since experience and human resources are rare and the reform of the pension system and of health services takes time. Banks should be allowed to fill the gap for the time being, by putting at the disposal of savers a wide variety of financial instruments. 2.
7 Consequently, our proposition could now include this consideration: Different economic agents will be more or less willing to invest in negative rate investments to the extent that their costs of handling currency are lower or higher than others’, and to the extent they have available to them zero interest rate economic arrangements. In addition, having talented individuals looking for these opportunities is a dead-weight loss to society. We would rather have them use their talents for more socially productive purposes. In addition to the convention that all prepayments of debt carry a zero interest rate, creditors often have the option of deciding when to settle a debt, for example by choosing when to deposit a check once it is received. In an environment in which negative nominal rates prevail, one would want to collect debts slowly (at least from creditworthy counterparties). 8 For example, if one were to receive a check from the U.S. government for a tax refund, one could simply put it in a safe place and earn zero interest on it during the time the check remained undeposited. (These practices could trigger further innovations, such as a check with a “deposit-by” date embedded in it.) How strong these incentives are depends on the level of the negative rates. The lower the negative rate and the more persistent it is expected to be, the more attractive these practices would be. Consequently, these zero rate economic arrangements form another constraint that would prevent rates from going too far into negative territory.

In the recent past the velocity has been declining, while multiplier has hovered between 5.0-5.2. In 2007, this trend is expected to continue. 8  BIS Review 8/2007  Table 1 Quarterly targets for reserve money Rs. billion Dec. 2006  Reserve Money Point to Point Change %  2007 Targets  Target  Actual  Mar  Jun  Sep  Dec  227.6  239.8  254.6  250.4  257.8  267.6  15.0  21.2  17.3  17.9  16.1  11.6  Table 2 Indicative targets for broad money (M2b) Rs. billion Dec. 2006  Broad Money (M2b) Point to Point Change %  2007 Targets  Target  Estimates  Mar  Jun  Sep  Dec  1,175.6  1,221.6  1,274.9  1,291.4  1,315.9  1,383.2  15.0  19.5  19.2  19.0  17.9  13.2  The programme also allows for a Broad money growth of 17.6 per cent from the targeted level of Broad money at end 2006. This will reflect an increase in Net Foreign Assets of the banking system of US dollars 200 million, and increase in private sector credit by Rs 147.3 billion (15.5 per cent) and net credit to Government by Rs 16.7 billion. To maintain the overall increase in net credit to the Government at Rs 16.7 billion, net credit to the Government from commercial banks would need to be maintained at Rs 5.2 billion.
If all a CBDC did was to substitute for cash – if it bore no interest and came without any of the extra services we get with bank accounts1 – people would probably still want to keep most of their money in commercial banks. But even then it’s likely you’d see some money moving out of existing deposits. That drain would be greater the more closely a CBDC resembles a genuine bank account. One imagines it would also be counter-cyclical – resources would flow out of commercial banks during times of financial stress, back towards them when risk aversion is low. Shifting deposits to the central bank, and away from the leveraged commercial banking sector, has two important implications. On the one hand, it would probably make them safer. Currently, retail deposits are backed mainly by illiquid loans, assets that can’t be sold on open markets; if we all tried simultaneously to close our accounts, banks wouldn’t have the liquid resources to meet the demand. The central bank, by contrast, holds only liquid assets on its balance sheet. The central bank can’t run out of cash and therefore can’t suffer a “run”. On the other hand, taking deposits away from banks could impair their ability to make the loans in the first place. Banks would be more reliant on wholesale markets, a source of funding that didn’t prove particularly stable during the crisis, and could reduce their lending to the real economy as a result. This is the really main point I want to get across.

During periods of high network traffic, the average transaction time can take anywhere from 30 minutes to many hours. Transaction fee is also high and can spike up suddenly from time to time. The average fee per transaction in December 2017 was $ To put the matter into proper perspective, electronic payments, using either balances kept by commercial banks at central banks or retail payments using commercial bank balances, typically take a few seconds and cost a fraction of the transaction fees in Bitcoin transfers. Store of value: Crypto-currencies such as Bitcoin have displayed very high volatility in value. Crypto-currencies have no intrinsic value and are not backed by any institution or body regarding its value or purchasing power. Their price and thus value are determined solely by the supply and demand forces prevailing at the time, which can fluctuate sharply depending on the appetite of the participants. It is true that in some countries, there has been high volatility in the value or purchasing power of their (b) money, too. However, one must bear in mind that this kind of volatility normally happens in times of crisis or in jurisdictions that have rather bad macroeconomic, fiscal or monetary discipline. But for Bitcoin and most other crypto-currencies, their volatility seems to be structural in nature and the market dynamics that determine their price or value is rather opaque and hard to discern.
Additionally, a second wage growth tracker based on wages offered in new jobs also showed strong increases during 2022 suggesting strong wage momentum, though last readings show tentative signs of stabilitation. See P. Lane (2023): Underlying inflation, lecture at Trinity College Dublin, 6 March 2023. 17  Defined as those items in the core inflation basket for which wages account for more than 40% of input costs. 6  It is important to remember that a large part of the high inflation in the euro area has stemmed from the surge in commodity prices that has led to a significant deterioration in the terms of trade. This entails a loss of wealth and welfare for the euro area economy as a whole that is unavoidable in the short and medium term. If this loss is distributed fairly between workers and employers the inflationary spiral that will arise if they both attempt unilaterally to avoid this loss by maintaining their real wages and profit margins could be averted. Against this backdrop, to avoid the emergence of second round effects, it is essential to ensure that inflation expectations remain anchored at levels consistent with the price stability objective. The February vintage of the Consumer Expectations Survey shows three-year ahead inflation expectations coming down again, to 2.4%, suggesting that consumers interpret current inflation as having a high temporary component. Moreover, professional forecasters expect inflation to return to close to target over the medium term.

In addition, the strength of the transmission of our monetary policy actions to the economy is highly uncertain, due to the extraordinary pace of our rate hikes as well as changes in the euro area macro-financial landscape that could accelerate or delay the policy pass-through. Recent financial tensions originating in the banking sector add an element of uncertainty and reinforce the importance of a data-dependent approach. Thank you very much. 24  Huennekes, F., and P. Köhler-Ulbrich (2023). “Box 7 What information does the euro area bank lending survey provide on future loan developments?”, ECB Economic Bulletin, Issue 8/2022. 9