samchain/econo-pairs-v1 huggingface dataset:
We have witnessed a remarkable improvement in the functioning of short-term credit markets and an impressive recovery in the stability of large financial firms. While a whole range of government actions contributed to this recovery, giving financial institutions greater confidence about their access to funding, and that of their counterparties, was most likely a crucial step toward achieving stability. Moreover, the exit from these facilities has been quite smooth. At their peak, these facilities provided more than $ trillion of credit to the economy. Today, the remaining balance across them is around $ billion. It is impressive that the Fed was able to remove itself from such a large amount of credit extension without creating any significant problems for financial markets or institutions. That success largely reflects the effective design of those programs, as most were structured to provide credit under terms that would be less and less appealing as markets renormalized. This design worked incredibly well, as activity in most of the facilities gradually declined to near zero, allowing the Fed to simply turn them off with no market disruption. The success of these facilities should be judged by the outcomes they produced for financial market functioning, and not by the financial returns they generated on the Federal Reserve’s books. However, there are several reasons why the Fed might be expected to profit from this type of lending under most circumstances.

The lower levels of yields would be expected to boost other asset prices as investors substitute into alternative asset classes. These patterns describe what researchers often refer to as portfolio balance effects. Such effects are important to consider, because they have implications for monetary policy. If the Fed’s holdings of assets have produced lower long-term interest rates, the FOMC has to carefully take into consideration how it will manage the size of its balance sheet going forward. In particular, a rapid and substantial reduction in our holdings of assets would likely push up long-term interest rates that is, it would put upward pressure on those rates by unwinding the portfolio balance effect. That increase in long rates would, in turn, weigh on other asset prices, reversing the positive effects that had been associated with the expansion of the Fed’s balance sheet. Under this view, the size of the Fed’s asset holdings becomes a relevant policy lever. Accordingly, this will be the first tightening cycle for which there are two broad policy decisions in play, as the FOMC will have to set out not only the path of the short-term interest rate, but also the path of its asset holdings. The decisions on these two variables will have to be made in conjunction with one another to produce the desired outcome for economic activity and inflation. These considerations leave open a range of outcomes for how the two instruments will be used.
Effective monetary policy relies upon a rich and subtle understanding of the structure of the economy and how our policy decisions are transmitted to our final goals (the so-called “monetary transmission mechanism”). Equivalently, effective delivery of a financial stability mandate requires a rich and subtle understanding of the structure of the domestic and international financial system, and how developments in one part are transmitted to others. That means our range must continue to extend beyond banks to the capital markets and the financial infrastructure. The analogy does not stop there. In the monetary sphere, policymakers in the 1980s and 1990s urged reforms to make the real economy, especially labour markets, more flexible, as that would reduce the burden on monetary policy in smoothing cyclical fluctuations. The analogue in the financial stability sphere is that the authorities need to help to identify and, crucially, remedy faultlines in the financial system. Whereas for monetary policy we want real-economy flexibility, for financial stability we want financial system resilience. And just as the monetary policy transmission mechanism evolves, so the structure of the financial system changes. The explosion of Vehicular Finance and the development of credit trading are just two recent examples that affected the current crisis. We therefore need a very highquality, continuous assessment of emerging vulnerabilities in the system as a whole, and how it would behave under stress. 6  BIS Review 39/2009  Internationally the official community has not distinguished itself on that front over recent years. Just three examples; there are more, I fear.

These were exactly the challenges faced by the Bank in articulating the terms of its Discount Window Facility. But the challenges are even greater in this area because the exit strategy from capital injections is so much more difficult; by potentially delivering control, capital-insurance is much more closely intertwined with issues of management; and because there would have to be clarity about treatment of all parts of the capital structure. I think that articulating and sticking to policies in this area will be one of the great challenges over the coming years and decades. Macroprudential: taming the credit cycle It would all be a lot easier if we could tame the credit cycle. This is the debate about the missing “macroprudential instrument”. What would be the objective; is there in principle an instrument; would it work in practice in a world of free capital flows? Those debates are prior to questions of institutional responsibility. And they have a bearing on the parallel debate about the regulatory boundary, which is where I will begin. I start from the position that excessive leverage and maturity transformation in parts of the non-bank financial sector – funds, conduits, securities dealers, and so on – was predicated on the availability of plentiful credit on too-easy terms from the commercial banking system. Up to a point, the same goes for liquidity in asset markets.
In response to the worsening of the crisis, the Government approved two Decree-Laws in February and in May 2012 on the write-down of real estate risks on credit institutions’ balance sheets; and in July 2012, a reinforced strategy for capital restructuring and strengthening was adopted through the Memorandum of Understanding (MoU) with the European Commission. This included an injection of funds, provided through the European Stability Mechanism, for more than € billion. That same summer, the European Union took further steps in the reform of the euro area’s institutional architecture, which were crucial in dispelling redenomination risk. The measures included the approval of the plans for the Banking Union and the decision in September 2012 by the European Central Bank on possible direct purchases in the secondary market for government bonds subject to economic adjustment programmes or precautionary programmes. Chapter III in the Report explains the strategy agreed upon in the MoU. The main features of the measures were as follows: a new recapitalisation and restructuring process with public aid via the FROB, including an external assessment of the Spanish financial system, all of which is detailed in Diagram 3.1 and Table 3.3 of the Report; the segregation of a substantial volume of impaired assets of the banks that received public aid, which were transferred to Sareb, as detailed in Table 3.5 of the Report; and compliance by all banks with a level of top-quality capital of 9 %.

The integration processes called for a voluntary agreement between the parties. In the midst of the crisis, these agreements were not easy and they required, moreover, the approval of the related regional government authorities. But in 2011 nobody, or practically nobody foresaw the double-dip recession and less still how violently it would affect the Spanish economy. In April 2011 most agencies, including the IMF, the OECD, the European Commission and the Banco de España, were forecasting growth for our economy of around 0.8%, which at the end of the year turned out to be a decline in GDP of 1.0%, the biggest forecasting error on record in recent times for these institutions. The European Central Bank was acting in response to what it saw as a recovery scenario for the euro area, as testified by the fact that it raised its benchmark interest rate by 25 bp on two occasions, in April and in July 2011, only to reverse these rises from November, in light of the worsening sovereign debt crisis. The forecasting error was also most significant in 2012: in their 2012 spring projections, most institutions estimated a decline in GDP of around 1.6%, and ultimately it was 2.9%. Overview As is addressed in the final chapter of the Report, I should now like to take an overall view of the crisis.
One question on the minds of many in the official sector is, “what is the most effective way to promote reform?” Sharing ideas on leading practices, challenges and the opportunities for industry collaboration is a start – but it is not the end. Financial firms need to act on this information, and the official sector should hold institutions accountable for demonstrating sustained, observable progress. Overview of agenda Let me now give a brief overview of today’s agenda. The first panel will present the Group of Thirty’s recent report on banking conduct and culture, which calls for fundamental and  5  William C. Dudley, Ending Too Big to Fail, Remarks at the Global Economic Policy Forum, November 7, 2013. 6  Federal Advisory Council and Board of Governors, Record of Meeting, May 8, 2015. 7  William C. Dudley, Enhancing Financial Stability by Improving Culture in the Financial Services Industry, Remarks at the Workshop on Reforming Culture and Behavior in the Financial Services Industry, October 20, 2014. 8  See, e.g., Mirea Raaijmakers, ed., Supervision of Behavior and Culture: Foundations, Practice & Future Developments, De Nederlandsche Bank (2015). 2  BIS central bankers’ speeches  sustained change. As you all know, the Group of Thirty is a forum consisting of senior public officials and private sector bankers. Its purpose is to facilitate non-partisan discussion of issues that threaten global economic stability and economic progress.

I would encourage each of you to consider not just specific examples of misconduct, but the patterns within them that point to underlying causes. I suspect we will see a strong overlap with those factors that contributed to the financial crisis. I think your focus should be less on the search for bad apples and more on how to improve the apple barrels. Role of the official sector Dodd-Frank strengthened bank balance sheets, and banks have become more resilient to systemic shocks. This is a positive development. At the same time, it is also important to mitigate the sources of systemic shocks. Dodd-Frank apparently did little to curb misconduct – a possible source of systemic risk. If the people managing capital cushions and liquidity buffers view these tools as sufficient mitigants for the costs of misconduct, or if powerful incentives encourage workarounds of the new regulations, then the connection between post-crisis reforms and greater financial stability becomes threatened. In the last year, we have seen emerging approaches to supervision that aim to address culture, conduct and governance. These methods are being developed in a number of jurisdictions. 8 I am pleased to welcome representatives of 15 foreign supervisors and other official sector agencies who are joining the many representatives of U.S. supervisory and regulatory agencies here today. The topic of culture and conduct has truly become a global dialogue. We have a lot to learn from each other.
Real GDP expanded at a 3.0 percent annual rate in the fourth quarter of 2011, the fastest growth since the first half of 2010. The average monthly job gain was 212,000 in the first quarter of 2012, up from 164,000 in the fourth quarter. Sales of light-weight motor vehicles were about 14 ½ million at an annual rate in the first quarter, the best quarter in four years. Survey measures of business activity have rebounded from their dips in the middle of last year and are now at levels that typically indicate solid overall growth. Even housing starts have firmed somewhat in the last few months, although they remain at depressed levels. While these developments are certainly encouraging, it is still too soon to conclude that we are out of the woods, as underlined by the March labor market release. To begin with, the economic data looked brighter at this point in 2010 and again in 2011, only to fade later in those years. Moreover, the United States experienced unusually mild weather over the first quarter, with the number of heating degree days more than 20 percent below the average of the preceding five years, which may have pulled forward some economic activity and hiring. In this regard, the somewhat softer March labor market report that was released last Friday may reflect the earlier positive influence of the mild weather on job creation in January and February, although other less sanguine interpretations are also plausible.

We thus will need to see more data to determine the extent to which the March data represent a transitory weather-related setback. Regardless of the importance of the mild winter in distorting the recent economic data, real economic activity has yet to be strong enough on a sustained basis to make a big dent in the overall amount of slack in the U.S. economy. While growth was stronger in the fourth quarter, most of it was due to inventory accumulation. Growth of final sales remained quite weak. Historically, quarters in which inventory investment makes significant growth contributions are typically followed by quarters in which that growth contribution is modest or even negative. That appears to be what is shaping up for the first quarter of this year. Based on available data, our current expectations are that real GDP will expand at around a 2 ¼ percent annual rate during the first quarter of 2012. Even with the robust increase of light vehicle sales, overall consumer spending in the first quarter appears to be rising at a similar moderate rate. At the same time, real disposable income has been flat over the past three months, and the large increase of gasoline prices is likely further sapping consumers’ real purchasing power. And growth of business investment spending, which softened in the fourth quarter of 2011, may have been even a little softer in the first quarter of this year.
No one, however, asked, in a world of uncertainty, how to measure the “neutral” level of the interest rate. That was assumed as a given. This is the theoretical basis of the so-called Taylor rule. Nor was the crisis understood by those who continued to assume that financial markets were perfect, without frictions, in which the inflating and bursting of speculative bubbles is part of a moving equilibrium condition, in which economic policy should not intervene. In accordance with this approach, monetary policy, or the prudential supervision system, should not intervene in order to avert erratic market behaviour, which causes excessive flows of indebtedness and unstable dynamics in financial activities, but rather intervenes ex post, in order to reinflate the bubble when it bursts. Doing it that way, by reinflating it, the bubble has finally burst with detrimental effects on the world economy. BIS Review 82/2009  1  Franco Bruni’s book demonstrates that the excessively accommodative monetary policy following the dot-com bubble and 11 September fuelled the subsequent speculative bubble, which then burst in the summer of 2007. He himself acknowledges that the main responsibilities probably do not lie with monetary policy, but rather with the absence of regulation of new financial instruments, which permitted institutions to increase their leverage capacity and favoured the indebtedness of households and firms. However, monetary policy contributed to the build-up of imbalances by keeping interest rates very low, above all, during the period when the US economy was starting to pick up again.

It can be confirmed from this that the ECB reports with the same intensity and frequency as the US central bank. This does not mean that the quality of interaction cannot be improved, but this depends, to a large extent, on the European Parliament. BIS Review 82/2009  5
Given the nature of the recent rise in inflation, the first question we should ask ourselves is how our monetary policy should respond to it. In July 2021, the ECB adopted a new monetary policy strategy, the cornerstone of which is a symmetric inflation target of 2% in the medium term. The aim of the ECB is therefore not to stabilise current, observed inflation, but to stabilise inflation over the medium run. This medium-term orientation responds to two considerations. First, monetary policy affects inflation with variable lags. The transmission mechanism of monetary policy operates first by affecting banks’, firms’ and households’ financing conditions. This, in turn, affects credit, investment, and consumption decisions. The resulting changes in aggregate demand exert pressure on firms’ production needs, thus lowering their demand for labour and other inputs, and hence on production costs, and will end up affecting prices. This process however takes time. Empirical studies typically show that monetary policy decisions have their maximum effect on inflation after one-and–a-half to two years. Therefore, attempting to stabilise observed inflation at all times is a futile, and probably counterproductive task, as it increases the volatility of macroeconomic aggregates. Second, the optimal response of monetary policy depends on the nature of the shocks that cause inflation to rise. For instance, an energy shock is typically considered as a supply or “cost-push” shock, as it increases production costs for firms.

In our June meeting we concluded that the conditions in our forward guidance for raising interest rates had been fulfiled; we therefore communicated our intention to raise rates in July and again in September, and –consistently with our chained forward guidance 8  See, for instance, Carvalho, C., S. Eusepi, E. Moench and B. Preston, “Anchored Inflation Expectations”, American Economic Journal: Macroeconomics (forthcoming). 9  See Gáti, L., “Monetary Policy and Anchored Expectations: An Endogenous Gain Learning Model” ECB Working Paper No. 2022/2685, 2022. 4  between rate hikes and asset purchases- we announced that net purchases under the APP would end at the start of July. In that month we raised our rates by 50 basis points, a larger increase than we had signalled in June, based on our updated assessment of inflation risks and the reinforced support provided by the new Transmission Protection Instrument (TPI) for the effective transmission of monetary policy across the euro area. Earlier this month we hiked rates by an unprecedented 75 basis points, motivated by inflation levels that were far too high and likely to stay above our target for an extended period.10 This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will support a timely return of inflation to our two per cent medium-term target. As you can see, we decided to start the normalisation of our policy by raising our interest rates, instead of by reducing the size of our balance sheet –the so-called “quantitative tightening”.
Domestic and external public debt 40  Figure 4. International reserves 40 EUR bn. percent of GDP  35  35  30  30 25  25  20  20  15  15  10  10  5 5  domestic public debt Source: MPF  2015  external public debt  2016  Aug. 2017  gold  foreign exchange reserves  Oct. 2017  2014  Sep. 2017  2013  Dec. 2016  2012  Dec. 2015  2011  Dec. 2014  2010  Dec. 2013  0  Dec. 2012  0  Source: NBR 3  Figure 5. Economic growth rates worldwide 10  percent  8 6 4 2 0 -2 -4 -6  global economy emerging market and developing economies Romania  2018*  2017*  2016  2015  2014  2013  2012  2011  2010  2009  2008  2007  2006  2005  -8  advanced economies euro area US  *) IMF forecast, October 2017 – baseline scenario Source: IMF  4  Figure 6.

Brunner and Meltzer’s classic monetarist account emphasises the importance of a rich set of credit, term and liquidity premia in monetary policy transmission. These premia drive the spreads between the policy rate established by central bank and the interest rates at which firms and households borrow, which are most relevant for spending and pricing decisions in the real economy. Brunner and Meltzer conclude that these spreads are largely unobservable – in particular, in a bank-centred financial system they will be codified in loan covenants and pricing that are proprietary and/or confidential. Monetary quantities play an important role in characterising the transmission mechanism because they both influence and summarise this body of information in spreads and premia in a way that is both accessible and relevant. Changes in financial structure over recent decades have implications for the Brunner / Meltzer motivation of monetarist transmission. Not only are credit conditions surveys and bank level data on funding costs and the pricing of loans more readily available, but the greater importance of asset markets and NBFIs in the provision of external finance to firms implies that spreads and premia are more often transparently priced in open markets. The focus has correctly shifted towards NBFIs. This has led to the construction of weighted averages of asset prices – so-called Financial Condition Indices (FCIs) – as an alternative to monetary aggregates for capturing the impact of financial pricing on monetary policy transmission. [13] But the weights assigned to different asset prices are controversial and experience with such indices has been mixed.