samchain/econo-pairs-v1 huggingface dataset:
You can think of monetary policy as a large gear that is connected to smaller gears representing different sectors of the economy. But not all gears move at the same pace. Some turn more quickly, while others are slower, meaning they experience longer lags between policy actions and effects. These effects of monetary policy are showing up in prices at different speeds. For example, the prices of globally traded commodities have already declined and are now well below levels we saw earlier last year. This reflects in part the effects of lower demand resulting from tighter monetary policy here and abroad. Similarly, prices for many goods have started to plateau or even decline, reflecting weaker demand, lower import costs, and an easing of global supply disruptions that developed during the pandemic. For example, prices of used cars-a big driver of inflation during the first year of the pandemic-have been retreating toward more normal levels over the past few months. The combination of the general rotation of demand from goods to services and the effects of higher interest rates on demand for goods should contribute to further downward pressure on the prices of many goods this year. 2/4  BIS - Central bankers' speeches  One gear that is moving at a far slower pace is the price of non-energy services. The ongoing imbalance between supply and demand in this sector continues to contribute to inflationary pressures. But there is some good news on this front as well.

Legislation on resolution The second major reform I would like to comment on refers to rules on the resolution of nonviable institutions. Traditionally, the principle of constructive ambiguity has prevailed when action is taken by authorities in the face of problems of bank solvency. Under this approach, financial institutions’ liabilities – except for guaranteed deposits – do not formally qualify for specific legal treatment, aside from the seniority established in the case of bankruptcy in accordance with conventional commercial law. However, the authorities have used discretionary power to protect the holders of banks’ debt instruments – through capital injections which have prevented the winding up of such banks – when they have considered that their bankruptcy could entail undesired systemic effects. In the recent past, it has become evident that the systemic effects of banking crises can be very marked, even when they affect institutions of no great size. Consequently, constructive ambiguity has resulted, at least in the first stage of the crisis, in widespread public action to assist ailing institutions. This has confirmed the existence of an implicit public guarantee of bank liabilities which, when activated, has generated considerable costs for the public finances of the countries most affected. Constructive ambiguity generates an incentives system which makes it difficult for institutions and their creditors to manage risk appropriately. Thus, the restoration of an effective incentives system needs to limit confidence in public support schemes being activated across the board.
I noted particularly that the Association could play a role in three main areas: by acting as an industry representative and interlocutor with regulators; by establishing common standards and documentation; and by promoting market transparency and efficiency. I am glad to say that the Association has delivered on its promises in each of these areas. Its website is, for example, now up and running, and is an important source of information for both members and non-members. If I could put in a plea, however, it would be for more market statistics to be made available on the parts of the website that are open to non-members - or honorary members such as the HKMA. In its representational role, the Association offered very helpful comments last year on the draft guideline that the HKMA prepared on the management of the risks associated with syndicated lending. Our initial draft generated a certain amount of heat. This was I think largely due to a feeling on the part of the industry that we had overplayed the inherent risks of syndicated lending. We therefore made it clear in the final version of our guideline - which we issued in non-statutory form - that syndicated loans are not necessarily riskier than other types of lending. Indeed, the distribution of lending among participants is designed to reduce risk by sharing it.

A key part of this test will be to examine the resilience of banks to a housing market shock and a snap back in interest rates. Let me therefore finish by drawing seven important messages for the future from this example of UK housing conditions and how the new system of financial regulation will operate: •  first, an effective macro-economic framework needs the credibility to influence people’s expectations of future conditions and how our policy actions will influence them. Our actions, and therefore the expectations of them, have to be credible and therefore consistent over time. The FPC has taken steps to lay out the future actions it would take if it judged the momentum of the housing market to be too strong;  •  second, in doing this “laying-out” of future actions, we are signalling that we will act to prevent the pro-cyclical tendencies of the past – whereby lending and underwriting standards weakened in the good times and then suffered a knee-jerk reaction back when conditions deteriorated;  •  third, the FPC and PRA are going to be very explicit in their use of forward-looking judgemental tools of prudential supervision, of which stress tests are a prime example;  •  fourth, our policy-making tools in the Bank of England will be joined up, consistent with our single-mission directed at the public good. A clear example of this is that our three statutory bodies, the MPC, FPC and PRA Board will work together closely.
Some elements of the general bankruptcy procedure, such as freezing balance sheets, may in some cases be directly harmful if applied to a systemically-important institution. For example, the banks’ central role in the payment system means that one cannot merely stop payments in one or more of the major banks, as this could have devastating consequences for the financial system. During the bank crisis no banks were declared bankrupt. The lack of specially-adapted regulations for winding up problem institutions with the capacity to take into account society’s need for financial stability was emphasised by the Banking Law Committee. This was a commission of enquiry appointed in 1995 in the wake of the bank crisis to look into the needs for modernised legislation for banks. The Committee also presented a proposal for a new system to manage banks in distress, called public administration. This proposal has now been under investigation, as it is called, by the Government Offices since the year 2000. Custodia was a reminder of the shortcomings Since then we have received new indications of the shortcomings in the regulations. The course of events at credit institution Custodia in 2006 indicated worrying difficulties in managing even a relatively small and insignificant problem institution. We are therefore in no way better equipped than the United Kingdom to manage problem institutions and this applies with regard to both small and large institutions. Fortunately, Custodia was a small company and the problems occurred in a situation where there was relative calm on the financial markets.

This can sorely test the coordination of the exchange of information and the decision making. The Swedish bank’s substantial activities abroad have therefore meant that the Riksbank has entered into a number of agreements on cooperation in the event of financial crises with the central banks in the other Nordic countries and in the Baltic states. There is now also an overall agreement on crisis management at EU level – a Memorandum of Understanding, MoU. This covers central banks, supervisory authorities and finance ministries in all of the member states. Agreements of this nature are valuable because they create orderly forms for cooperation. They create necessary contact networks and not least a common parlance, which can be of great importance when managing a crisis. But these MoUs also have shortcomings. They are often worded in a vague and general manner and are not usually legally binding; more a declaration of intent. But the most serious deficiency is that they do not take into account the conflicts between national interests which may arise in a crisis situation. These should be added to all of the other conflicts which may arise between different interested parties and authorities with different objectives. Conflicts between national interests can be particularly prominent if the socioeconomic costs of a crisis in a cross-border institution are unevenly or unreasonably distributed between different countries. This could in some situations affect the willingness to contribute constructively to an overall solution of the crisis.
Various proposals have been formulated in this regard, including: strengthening the capital requirements for counterparty credit risk exposures arising from derivatives, repos and securities financing activities; a leverage requirement (capital divided by total exposure) to put a cap on the level of leverage in the banking sector; and internationally harmonised global liquidity standards, including a liquidity coverage ratio and a structural ratio (measuring the amount of longer-term stable funding sources to cover the liquidity needs for funding assets over the period of one year). Finally, governance of financial institutions must be strengthened, for instance with regard to remuneration incentives. 13 The regulatory community is well aware of the fact that the reform must be introduced in an ordered manner in order to ensure the resilience of the financial system as a whole, while also supporting economic growth over the longer term. The proposals are currently the subject of extensive consultations with the banking system. In addition, an impact study will be conducted to assess the implications of the various measures. Based on the outcome thereof, the aim is to arrive, by the end of 2010, at an appropriate calibration for the new requirements in terms of the level and quality of capital, in order to find a balance between financial innovation, financial stability and sustainable economic growth. The Basel reform will be phased in gradually as financial conditions improve and the economic recovery strengthens, with the aim of implementation by the end of 2012.

Thomas Jordan: SNB monetary and investment policy and the impact of the strong Swiss franc Summary of a speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Volkswirtschaftliche Gesellschaft des Kantons Bern, Berne, 28 November 2012. *  *  *  The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). As part of measures to combat the financial and economic crisis, balance sheets of central banks around the world have expanded substantially. In 2009 and 2010, the Swiss National Bank (SNB) intervened in the foreign exchange market in order to combat an excessive appreciation of the Swiss franc. On 6 September 2011, it set a minimum exchange rate of CHF 1.20 per euro, in order to avert major damage to the Swiss economy. Since then, the SNB has enforced this minimum rate with determination and is prepared to buy foreign currency in unlimited quantities. This monetary policy is reflected in a very substantial expansion in its balance sheet. It has also altered the importance of the currency reserves and had an impact on the SNB’s investment policy. In view of its mandate, monetary policy has priority at the SNB. Investment policy must be subordinated to the requirements of monetary policy. It is at the service of monetary policy and may not limit its room for manoeuvre. At present, enforcement of the minimum exchange rate has the greatest influence in the management of the currency reserves.
With these measures, therefore, the Riksbank has the possibility of supplying at least SEK 1,400 billion to the banking system to ensure corporate money does not run out and to mitigate the effects on output and employment. Added to this, there is also the possibility to borrow unlimited amounts of money on a weekly basis if necessary. At the same time, it is worth remembering that our measures come on top of the generous and enormous efforts currently being made by the central banks in the world’s major economies. Going forward, it will be extremely important to monitor developments in the economy, both to evaluate the measures we have implemented and to see whether more needs to be done. The Riksbank will follow developments via many information sources. We follow indicators of how the real economy is developing in the very short term and we are working to identify more indicators that can provide additional information about different parts of the economy. Naturally, we will also closely follow the extent to which our programme of corporate lending is being used. As always, we are closely monitoring developments on financial markets and we are talking to market participants, banks and companies. We also have a close dialogue with other authorities and with central banks in other countries. If I may conclude with a personal reflection. As I mentioned earlier, this is the third major crisis in the Swedish economy that I have been involved in dealing with.

In a situation where the Riksbank's monetary policy scope is not unlimited, it is important that the question of how an economic downturn shall be counteracted is on the economic policy agenda. There are currently large reserves in fiscal policy, but using them is not unproblematic. If low real interest rates persist, it may in the longer run become necessary to modify the monetary policy framework with the 2 per cent inflation target that  35 It is fairly common, especially among emerging market economies, to lower the inflation target as confidence in the inflation-targeting regime increases. However, there are few examples of countries that have raised their inflation target (see, for instance, Apel, Armelius and Claussen, 2017). 17 [24]  most central banks currently apply. Of the various proposals circulating in international debate, I am currently leaning towards a raised inflation target being the best option. At the same time as this would alleviate the problem that the repo rate cannot always be cut as much as needed, it is also relatively undramatic and straightforward. But this does not mean that it is something I feel we should do soon. A fairly major problem is that it is difficult to make this kind of change independently of other countries. But it is always good to be well-prepared in advance and it is therefore worth starting to think about possible modifications already today.
With these words of welcome I now turn the floor over to Mr. Moises Schwartz, the Director of the IEO to set the scene for the discussion of the workshop. 2  BIS central bankers’ speeches

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Signs of a turnaround Purchasing managers’ index, index above 50 indicates growth 70  70  65  65  60  60  55  55  50  50  45  45  40  40  35  35  30  30  Sweden Euro area USA  25  25 20  20 00  01  02  03  04  05  06  07  08  09  10  Sources: Institute for Supply Management, NTC Research Ltd and the NIER  14  BIS Review 98/2009  15. Employment Thousands, EU definition, 15-74 years of age, seasonally-adjusted data 4800  4800  4600  4600  4400  4400  4200  4200  4000  4000  3800  3800 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12  Note: The dotted line indicates the Riksbank’s forecast. Data prior to 2001 has been chained by the Riksbank  Sources: Statistics Sweden and the Riksbank  16.

Rather the reverse; the weak labour market and the unusually low resource utilisation point to low wage increases. This, combined with the fact that productivity usually improves when economic activity turns around, implies that unit labour costs will be weak in the coming period. We are also assuming that the krona will strengthen, which will hold back import prices. It is also difficult to believe that demand would become so strong that it pushes up inflation. It is considerations like this that are behind the assessment that I made in July; that the repo rate will probably need to remain at a low level for a long time to come. Resource utilisation will remain low during the foreseeable future and it is difficult to envisage any inflationary pressures. At the same time, borrowers should be aware that the current situation is an extreme one and that at some point in the future we will need to raise the interest rate back to a more normal level. Concluding remarks I have now described the Riksbank’s view and my personal view of developments in Sweden and abroad. Despite GDP falling heavily this year, employment falling and unemployment rising, there are now signs that an improvement is on the way. The situation in the financial markets has improved and the new information received during the summer confirms the view that the deep recession has bottomed out. But the improvement is from unusually low levels and the recovery will probably be weak.
Trade deficit in the second quarter was 20% higher compared to a year earlier. Our exports shrank by about 2.8% year-on-year for this period, a reflection of reduced exporting of energy, which is a volatile component in exports. Despite this development, the core basis of exports continues to maintain more sustainable growth rates. On the other hand, imports continued their annual growth, albeit at a lower rate compared to the first quarter of the year. Aggregate demand performance triggered economic activity growth but was inadequate to fully utilise Albania’s output capacities. Developments in the labour market seem sluggish and do not have premises for emergence of stable inflationary pressures. Signals from economic information are confirmed also by the monetary indicator analysis. In June, annual growth of M3 aggregate was 11.8%, around average rates of the past 12 months. Our assessments show that the expansion of monetary supply is in line with the performance of the economy’s demand for monetary assets. In June and throughout the second quarter, the public sector demand for funding was high, in line with the intensity of the fiscal activity during that period of the year. Furthermore, the private sector demand for funding continued to be moderate. Lending to private sector posted annual growth of 11.6% in June, in line with the second quarter’s performance. Financial markets are characterised by a serene environment with contained risk premia. Interbank market experienced increased trade volume; interest rates were close to the key rate and had low volatility.

The ECB’s asset purchases are being expanded in terms of both size and composition: the monthly purchase volume has been increased from € billion to € billion and the universe of eligible assets now includes non-bank corporate bonds. Purchases are intended to run until the end of March 2017 – or beyond, if necessary – , and in any case until the Governing Council sees a sustained adjustment in the path of inflation to levels close to 2% over the medium term. Taking into account the current outlook for price stability, the Governing Council expects the ECB’s key policy rates to remain at present or lower levels for an extended period of time, well past the horizon of the net asset purchases. We are confident that the very accommodative monetary policy stance will provide further support to the euro area recovery and will accelerate the return of inflation to levels that we consider to be consistent with our objective. The Governing Council has done and, within its mandate, will continue to do whatever is needed to pursue its price stability objective. Our very accommodative monetary policy stance has provided considerable support for the euro area recovery. By supporting growth prospects, our actions have also been beneficial for financial stability.
Thus, the stand alone approach was in many ways the only practical choice at the time the initial supervisory stress tests were conducted. A final set of design choices affecting how stressed capital ratios are measured involves the actual models that produce the estimates of net income and capital. The models used in the CCAR and DFAST supervisory stress tests are developed and implemented by supervisors – they are almost entirely independent of stress test models used by banks. This is something that has evolved over time. The SCAP results were based on a variety of sources, including projections made by the banks, simple supervisory models, and historical data on bank performance. The blending of sources reflected that the SCAP was the first broad-based supervisory stress testing program, conducted in a crisis environment, with significant learning along the way. Over time, supervisory estimates have become increasingly independent from the projections made by banks. Supervisors and economists in the Federal Reserve System have developed models to capture the impact of the stress scenarios on various elements of net income, including different categories of loans and securities, interest and non-interest income, non-credit expenses and balance sheet evolution, as well as the flow through of net income to regulatory capital. This was a policy choice intended to provide consistency of treatment across banks involved in the stress tests and to counteract any incentives banks might have to understate the impact of the stress scenario.

Although the process of financial integration in the euro area was heavily disrupted in the aftermath of the global financial crisis in 2008 and the sovereign debt crisis in the euro area in 2011, the single currency area has held together. These gains should not be lightly discarded. 1  But the double shock of the financial crisis and the subsequent fiscal crisis has hit EMU hard. The euro area economy is currently in a moderate, gradual recovery that has been under way since the second quarter of 2013. However, in some member states that were hit the hardest by the sovereign debt crisis, output remains considerably below the levels registered in 2008. Unemployment rates diverge considerably across the euro area, ranging from over 20% in Greece to below 4% in Germany. The euro area is facing pressure along four different fault lines. First, there is the tension between euro area member states that are in different cyclical and, in some cases, secular positions and yet face the same nominal interest rate and exchange rate. Second, there is the related tension between monetary policy that is determined at the level of the euro area as a whole and fiscal policy which has remained, in effect, largely national. Third, there are tensions that arise from the fact that the single currency is embedded in an incomplete single market, including only a partial banking union.