samchain/econo-pairs-v1 huggingface dataset:
But the underlying message of these models remains: a policy aimed at stabilising inflation and the output gap at a horizon around two years ahead is both desirable on welfare grounds and consistent with price stability over the medium term. Given our experience over the past few years, these strong conclusions are now rightly treated with scepticism. With the benefit of hindsight, it is apparent they served to breed complacency among both policy-makers and market participants, resulting in overconfidence in the ability of macro policies to stabilise the economy. Such complacency contributed to both poor policy choices and destabilising private sector behaviour. Such decisions may help to explain the emergence of financial crises in recent years. Critiques of the benchmark New Keynesian model are legion. 13 I will not repeat them here. Suffice to note that an important weakness of these models was the absence of a financial sector. As a consequence, the financial intermediaries, financial frictions and asset price bubbles and corrections that have played a key role in the events of the past three years were neglected. To illustrate, imagine a scenario where inflation falls because of a positive supply shock, such as a reduction in manufacturing import prices from Emerging market economies. An inflation-targeting central bank would decrease its policy rates to boost inflation back towards its target level, simultaneously raising output closer to its new (temporarily higher) potential level.

New information gradually emerged about the outlook for other countries and the Norwegian economy, indicating that inflation might be very low. Inflation fell markedly from summer 2003, and continued to fall up to spring 2004. Consumer price inflation has subsequently edged up, albeit slowly. Low international interest rates and favourable terms-of-trade developments for Norway have curbed the effects of low interest rates on the krone exchange rate. Higher imports from low-cost countries, competition and more efficient Norwegian production and trading processes have also kept inflation low. One year ago, underlying inflation was close to zero. In April 2005, the year-on-year rise in consumer price inflation adjusted for tax changes and excluding energy products was 0.8 per cent. The rise in prices for domestically produced goods and services has been higher and has picked up over the past year. BIS Review 38/2005  1  Adjusted for the direct effects of the decline in interest rates on house rents and lower rates for day-care places, the rise in prices was 1.0 per cent in April. Alternative measures of inflation also show that underlying inflation has edged up. Background for the deviations from the inflation target in 2004 and the first months of 2005 Prices for imported consumer goods continued to fall through 2004, but at a slower pace than in the previous year. A weaker krone in 2003 contributed to a deceleration in the fall in prices for clothing and footwear and the decline in prices for audiovisual equipment moderated.
In this context, the ECB cannot commit itself to move its interest rates in a certain way in response to specific actions or plans of other policymakers. Monetary policy has to take the overall economic situation into account in its assessment of the risks to price stability. For a monetary union to be viable, the fact that monetary conditions may not be tailored to the specific needs of each individual component of the euro area has to be accepted. Explaining this properly to eleven countries with different economic, political and cultural backgrounds is also one of the challenges we are facing. It will probably be better understood over time, subject to further progress being made towards a positive attitude regarding European integration. Such a positive attitude – that is seeing Europe as a positive opportunity – will also help to cope with the challenges posed by the accession of new countries to the EU. This leads me to the second part of my presentation. 3  BIS Review 116/1999  2. Looking ahead – the accession of new countries to the EU and, eventually, the euro area  European integration as well as monetary union is an ongoing process and will continue to be so in the future. Four EU countries have, for different reasons, not yet adopted the euro. Without elaborating on that, let me simply state that they may well join in the coming years.

The result is that, on average, between 40% and 60% of an idiosyncratic shock to a euro area country translates directly into a decline in its consumption, twice the analogous impact estimated for the United States. Against this background, the Capital Markets Union, which aims at providing firms and households with identical funding and saving opportunities, irrespective of their location, remains an essential initiative. The Capital Markets Union project has focused on several initiatives (or operational objectives). These aim to improve information flows in order to facilitate price discovery; to allow better access to new markets and products; and to achieve a stronger enforcement  13  of rules and procedures in order to increase legal certainty and investor protection. Progress has been fruitful in some areas, but much remains to be done. In general, the project garners broad support from all parties concerned, but it currently lacks much-needed momentum. As indicated in the conclusions of the Report by the Next CMU High Level Group in October last year, the sheer breadth of the project and the multiple dimensions involved require the identification of a large number of specific actions, aiming to enhance supervisory and regulatory harmonisation, which must be promoted and implemented at the national and supranational level. Finally, the creation of a common safe asset for the euro area may be the cornerstone of a common capital market, with important implications for other policy areas 2. A wellfunctioning capital market requires a broad asset class with ample liquidity and low risk.
The reason for the delay between the decision in January 1993 and the target coming into force was to give the inflationary impulse that arose when the krona was allowed to float in November 1992 time to wane. During summer 1994, inflation and inflation expectations began to rise. 7 Most analysts’ forecasts pointed to inflation overshooting the target by a broad margin, and various indicators showed that the long-term expected inflation rate, which had never been close to 2 per cent, was now above 4 per cent. The inflation-targeting policy was thus faced with its first real challenge and the Riksbank began to raise the repo rate. Despite this being an entirely logical measure in the prevailing situation, it was met with strong criticism from some parts of society. A number of members of the largely politically-appointed General Council of the Riksbank, which was then the body that made the monetary policy decisions, entered reservations against the decision. Some even considered that this interest-rate and monetary policy was leading Sweden into “economic suicide”. 8 The most important measure, they said, should be to achieve a 7 See Bäckström (2003) for a description of the situation at that time. 8 See LO (1994). It should be added that LO fairly soon afterwards came out in support of the inflation target and  has supported it ever since. 7 [20]  lower real interest rate.

José De Gregorio: Financial stability, monetary policy and central banking Introductory speech by Mr José De Gregorio, Governor of the Central Bank of Chile, to the 12th annual conference of the Central Bank of Chile “Financial stability, monetary policy and central banking”, Santiago, 6 November 2008. *  *  *  Welcome to this 12th Conference of the Central Bank of Chile, entitled Financial Stability, Monetary Policy and Central Banking, which will gather a select group of central bankers, experts and academics today and tomorrow. I cannot open this conference without sending my most heartfelt condolences to Klaus Schmidt-Hebbel, our former director of Economic Research and creator of this series of conferences, and to all his family, on behalf of the Central Bank of Chile and myself, for the terrible loss of his beloved son Diego. To him we dedicate these two days' work. Like every year since 1997, we are looking forward to two days of intensive work with discussions of the highest technical level, which usually have opened areas for us to develop our research agenda with rigor and relevance, in an ever more complex world. This version of our Annual Conference finds us in the midst of severe global financial crisis. After the Asian crisis, many of us wondered about where the next blow would come from and what shape it would take. The academic literature has analyzed foreign exchange and financial crises in small, open economies.
That is because the Federal Reserve has committed itself to supply sufficient reserves to keep the fed funds rate at its target. If banks want to expand credit and that drives up the demand for reserves, the Fed automatically meets that demand in its conduct of monetary policy. In terms of the ability to expand credit rapidly, it makes no difference whether the banks have lots of excess reserves or not. Another source of concern among some market participants has been the Federal Reserve’s purchase of Treasury securities. The worry here is that the Federal Reserve’s purchases are “monetizing the debt” and that therefore these purchases will ultimately prove inflationary. 4  In a world of excess reserves and a positive IOER, either the IOER or the fed funds rate could conceivably be used as the primary instrument of monetary policy. The Federal Reserve would have precise control over the IOER and this would lead to some variability in the actual fed funds rate. This would not be much of a departure from the recent past in which the actual fed funds rate has tended to fluctuate closely around the fed funds target. BIS Review 94/2009  5  Regarding the Fed’s Treasury purchase program, I want to make two points. First, with the fed funds rate constrained at zero lower bound, policymakers needed to find other ways to stimulate economic activity.

19  The supervisor (in English literature) was citing a letter from Mrs Henry Adams to her father, December 1881: “Its not that he bites off more than he can chaw as T.G. Appleton said of Nathan, but he chaws more than he bites off.” (Nathan was Appleton’s son). The remark is also sometimes attributed to Mark Twain as a comment on Henry James’ writing. 20  Hayek (1960), cited by Otmar Issing (2003). BIS Review 5/2004  13
The resulting effect on inflation is thus only temporary. Over recent months, inflation has been observed to be edging back up towards the zero mark. Mandate The SNB’s statutory mandate is to ensure price stability while taking due account of economic developments. We equate price stability with a situation in which the inflation rate is below 2%, but still positive. Unlike other central banks, we do not have a percentage inflation target. There are good reasons for this. A small open economy like Switzerland is continuously exposed to powerful outside influences. Monetary policy cannot always entirely offset these influences. It therefore makes sense for us to stabilise inflation within a range over the medium term. In the case of very large or recurrent unfavourable influences from abroad, inflation may temporarily turn negative. Often, this is also part of the process of real economic adjustment. The global economy has been exposed to a series of powerful shocks over the past ten years or so. Central banks worldwide have reacted with interest rate reductions and unconventional measures. We too have resorted to unconventional methods and, as in the past, we will not shy away from using these methods if it is in the interests of the country as a whole. However, any action we take will always be based on careful consideration of the costs and benefits in the short and long term. 2  BIS central bankers’ speeches  Outlook Let me conclude the first part of my speech with a brief look into the future.

Part of the reasons for success in these countries can be attributed to their modern financial systems and clear policies that support the growth of the sector. However, the fact still remains that for most African countries, a sustainable way of financing SMEs has yet to be found. As I mentioned earlier, the programme for this meeting is broad and extensive. But I would wish to draw your attention to a number of broad areas of reflection which I believe can help in delivering greater finance to the sector. The first area is that there is a need to accept that not all banks can or should even be expected to provide SME financing products. The cost structure and skills orientation simply make some financing institutions completely unsuitable to deliver SME products cost effectively. The implication of this is that greater effort must be placed on developing financial institutions that see SME financing as the core business and therefore set out to develop the expertise required to finance the SMEs successfully. Fairly often the discussion on SME financing is reduced to two diametrically opposed positions. On one hand, SMEs are considered by banks as representing a high risk and therefore, should be avoided or only dealt with cautiously and at a premium price. On the other hand, banks are accused of being inflexible and risk averse and consequently irrelevant to the sector. It is important to understand where the truth lies in these two statements in order to advance the cause of SME financing.
Survey evidence for Japan suggests around a 7% hit to labour productivity from home-working.8 Similar evidence can be found in studies of the UK.9 Survey data from the ONS paints a similar picture, with almost a quarter of workers believing their productivity has been negatively affected by home-working, compared with only 12% saying it has improved.10 These differences in the productivity effects of home-working, pre and post-Covid, are perhaps unsurprising. Mandatory home-working thrust large numbers of workers into an alien working environment – their kitchens, bedrooms and attics. There was no option of self-selecting. That meant, for many, not only a worse working environment but a steep learning curve as they adapted to new ways of working. Productivity, predictably, was hardest hit among those with least prior experience of home-working.11  5  These shifts are also likely to affect other labour market and economic behaviour, such as labour market participation and wage growth. See, for example, Mas and Pallais (2017) 6 Bartik et al (2020) 7 Dutcher (2012). 8 Morikawa (2020). 9 See Felstead and Reuschke (2020). 10 ONS (2020b). 11 Morikawa (2020). 4  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  4  At the same time, we should be cautious about jumping to too negative a conclusion when assessing the economic costs of the shift to home-working. Even if the amount workers produce each hour has fallen, as evidence and anecdote tentatively suggests, this need not imply workers’ overall economic contribution has fallen.

It may be relatively easy to discuss the transition plans with counterparties that are also financial institutions, as everyone is more or less on the same page. But IBORs are also used by banks’ different clients, both corporations and individuals. There is a big gap among these IBOR users on the awareness of the benchmark reform, so the situation becomes less straightforward. 12. Therefore, client education is another vital task. Banks should begin outreach to their clients, and educate them about the benchmark transition early. This could help to minimise misunderstanding and costly litigation in the future. Raising market awareness in Hong Kong 13. Closer to home in Hong Kong, the Treasury Markets Association (TMA) has been working with bank representatives on benchmark reform for many years. More recently it has intensified its reach-out to other sectors. It has set up a Working Group to engage a wider spectrum of stakeholders including accountants, lawyers, bank customers and industry 2/4  BIS central bankers' speeches  associations like ISDA. It is important that different market participants understand what the transition will mean for their business operations and how they should prepare for these changes. The Working Group is now looking at issues like the implications on accounting and the transition of cash products. It will further engage stakeholders to explore means of encouraging the adoption of alternative reference rates in their day-to-day transactions and business activities. 14. At the same time, the HKMA supervisors has also been actively engaging banks.
The fact that so far, at least, the strong growth has not generated an acceleration of inflation that is comparable to what happened in earlier upward phases has started a discussion of whether the trade-off between growth and inflation has changed in the 1990s. Judging from historical patterns, inflation ought not to have remained as low as it has. The relationship between growth and inflation is,  BIS Review 108/1999  2  of course, crucial in the assessment of future price trends and thereby for the formulation of monetary policy. It is not possible to arrive at definite assessments in this field. The analysis is complicated by, for example, the combination of decreased inflation expectations, uncertainty about the rate of potential growth and the size of the output gap, and how the labour market is functioning. The Riksbank has to be alert to every sign that may support or contradict the hypothesis of a lower trade-off between growth and inflation. We have revised our opinion about this on several occasions in recent years and have done so again in the present Report. In this we are not alone. Various international observers have changed their appraisal of the corresponding trade-off in the OECD area as a whole. In Sweden’s case it is judged that the low and stable inflation expectations, increased competition and EU membership are among the factors behind a better trade-off. In the Inflation Report, the Riksbank’s main scenario is accompanied by an analysis of likely risks.

Since the June forecast the spectrum of risks has changed somewhat; the chances of inflation being higher than in the main scenario are now judged to be greater than the probability of a lower rate. The increased upside risk has to do with fears that inflation will react more quickly to the rising economic activity and that labour market shortages may be more serious and lead to a stronger development of wages. The assessment of an increase in upside risks is accompanied by less likelihood of a slowdown in the global economy. But there is still the risk of international activity being dampened appreciably in connection with a major correction of the high stock market prices and the financial imbalances that have been a feature of the American economy in recent years. Such a scenario would affect price tendencies in Sweden. The risk of financial bubbles, with serious real economic effects if they burst, is something that the Riksbank, along with other central banks, has to heed. Monetary policy In the late summer, at the monetary policy meeting on 12 August, the Executive Board had already noted that stronger economic growth in Sweden and rising resource utilisation pointed to growing upward pressure on prices. That in turn indicated that monetary policy might have to be given a less expansionary direction in the future. Two members of the Board even advocated a small repo rate increase in August.
Previously, the stock of notes and coins used to grow over time in line with growth in the economy, but this has not been the case in recent years. Since 2007, the demand for notes and coins has instead declined, both in relation to GDP and in absolute figures. As far as I know, we are alone in the world with regard to the latter development. It is not entirely clear why this is so, but the fact that Sweden is in the forefront with regard to the use of card payments and electronic payments has probably contributed. The value of outstanding banknotes and counts amounted to SEK 109 billion ten years ago and comprised 60 per cent of the Riksbank’s balance sheet total. At the end of 2014, the item had declined to just over SEK 83 billion and now comprises only 17 per cent of the balance sheet total. The Riksbank assesses that cash will remain a means of payment for the foreseeable future, although it will probably decline in significance.3 The replacement of the Swedish banknotes and coins that will take place between autumn 2015 and summer 2017 increases uncertainty over how much cash will be in circulation during the coming years. What does it mean for the Riksbank when the amount of cash in circulation declines? Well, when this happens the banks do not need to hold such large stocks of cash as before. Instead, they deposit the money in their accounts with the Riksbank.

One thing that is immediately apparent when comparing today’s balance sheet with the one from ten years’ ago is that the debt items the Riksbank does not pay interest on, that is, notes and coins and equity, have gone from comprising almost 100 per cent to hardly 40 per cent of the Riksbank’s total funding today. This means that the probability of the Riksbank making losses in certain years has increased. I will return to this, but let us first look a little closer at the changes in the Riksbank’s balance sheet. The foreign currency reserve has strengthened The largest change in the Riksbank’s balance sheet is the strengthening of the foreign currency reserve. One can say that a central bank has three reasons for holding a foreign currency reserve. The first is to make interventions in the foreign exchange market, the second is to maintain a readiness to supply the financial system with liquidity in foreign currencies and the third is to meet obligations to international organisations. The Riksbank’s foreign currency reserve was strengthened partly because Sweden’s commitments to the International Monetary Fund (IMF) have increased, but mainly because the Riksbank is to manage the task of ensuring that the payment system in Sweden functions safely and efficiently. The serious situation abroad and the Swedish banks’ extensive funding in foreign currencies mean that the risks of disruptions to the financial system are higher than before.