samchain/econo-pairs-v1 huggingface dataset:
However, it would in general have been possible to attain the inflation target in the nearer term by changing the interest rate more rapidly and more markedly. Hence, in Norges Bank’s conduct of monetary policy, emphasis is given to variability in both output and inflation. This is called flexible inflation targeting. The impact of monetary policy occurs with a lag. The current inflation rate does not therefore 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. The choice of a two-year horizon is thus based on striking a balance between inflation stability and output stability and on a perception of how interest rates influence the path of inflation and output. Activity in the economy moves in waves. This variability can be described by developments in what is known as the output gap. The output gap shows capacity utilisation in the mainland economy measured as the difference between actual GDP and the level indicated by trend growth, estimated at 2½ per cent in Norway. When the output gap is positive, the economy experiences an upturn, and a downturn when the output gap is negative. The output gap increases in value in an upturn and decreases in a downturn. For the Norwegian economy, the 1980s was a period of relatively wide fluctuations in activity, with periods of high inflation.

This is particularly the case for prices for domestically produced goods influenced by world market prices. The fall in prices for imported consumer goods is not solely attributable to exchange rate developments. Clothing prices have exhibited a falling trend over the past few years. In October 2003, clothing prices were 13.7 per cent lower than in the same month one year earlier, and almost 30 per cent lower than in 1995. In addition to low external price inflation for these goods, lower tariffs for clothing have translated into lower consumer prices. The removal of quota regulations has also led to a shift in clothing imports away from high-cost countries to countries with considerably lower production costs. The same trend has been observed for the audiovisual industry. Since the mid-1990s, prices for audiovisual equipment have fallen markedly. In October, prices for these goods were 8.5 per cent lower than one year earlier. International producers have moved production to low-cost countries, allowing them to reduce prices charged to Norwegian importers. In addition, new technology and intensified international competition have exerted downward pressure on prices. Global economic growth has been considerably weaker than expected. Changes in the economic outlook are clearly reflected in interest rate expectations. In the US, these expectations have been adjusted downwards considerably since summer 2002. At that time, market participants expected the key rate in the US to be increased to about 4 per cent towards the end of 2003.
In addition, we reiterated our intention to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when we start increasing interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. The net purchases and longer reinvestment horizon reinforce the accommodative impact of our other measures, thereby further easing the funding costs for businesses and households in the euro area. In addition, these measures help keep down longer-term interest rates by mitigating the undue tightening that would otherwise mechanically arise from the reduction in the average maturity of our portfolio. Finally, net purchases also signal our commitment to use all instruments in pursuit of our price stability objective, which can have a powerful effect on the formation of inflation expectations. As a complement to the policy measures I just outlined, we also decided to change the modalities of the new series of targeted longer-term refinancing operations (TLTRO III) that we announced in June. Banks can now obtain this long-term funding at lower rates with a longer maturity. This will also help to ensure that our accommodative policies pass through entirely to the funding costs of households and firms. Finally, we also announced a two-tier system for reserve remuneration, in which part of banks’ excess reserves will be exempt from our negative rates.

Real GDP growth is now 1/5  BIS central bankers' speeches  projected to be 1.1% in 2019, down by 0.6 percentage points from the December 2018 staff projections, and 1.2% in 2020, down by 0.5 percentage points from the December projections. This slowdown is mainly due to the weakness of international trade in an environment of persistent uncertainties related to protectionist policies and geopolitical factors. These factors are increasingly weighing on economic sentiment and, in particular, on the manufacturing sector, which is more trade-oriented and exposed to foreign influences. Of course, countries which have a relatively large manufacturing sector are more vulnerable to any turn in the global economic cycle. Germany, for example, accounts for 28% of euro area GDP, but for as much as 39% of euro area manufacturing value added. Accordingly, Germany is today one of the euro area members most affected by the slowdown. While the euro area services sector continues to be resilient, we should not be complacent about its capacity to remain robust to negative spillovers. The longer the weakness in manufacturing persists, the greater the risks that other sectors of the economy will be affected by the slowdown. Looking ahead, recent data and forward-looking indicators – such as new export orders in manufacturing – do not show convincing signs of a rebound in growth in the near future and the balance of risks to the growth outlook remains tilted to the downside.
The dividing line is instead at the question of whether monetary policy may need to support macroprudential policy to counteract imbalances.14 Which side of the line you end up on depends on what you believe about the effectiveness of the tools for macroprudential policy and monetary policy respectively. How well do they counteract specific imbalances and what consequences do they have for the rest of the economy? If one believes that the instruments available to macroprudential policy can effectively keep the imbalances in check, and that monetary policy is too blunt an instrument and mostly affects the rest of the economy – well, then one probably ends up in the “Modified JacksonHole-consensus”, to return to Smets. On the other hand, if one is more uncertain about the effectiveness of the macroprudential instruments and believes that monetary policy nevertheless has some sting, then there is a greater probability that one will have the view that monetary policy may need to lean against the wind. If one is very uncertain about the effects of both policy areas, one probably also prefers monetary policy to be used parallel to macroprudential policy, at least until more is known about the effects. Monetary policy may need to support macroprudential policy Those who are sceptical about a monetary policy that leans against the wind often state, as I mentioned earlier, that the policy rate is a blunt and ineffective instrument in counteracting financial imbalances.

Per Jansson: The Riksbank’s monetary policy strategy – in tune or out of tune with the rest of the world? Speech by Mr Per Jansson, Deputy Governor of the Sveriges Riksbank, at a meeting at SEB, Stockholm, 2 June 2014. *  *  *  Was the strategy for monetary policy that was formulated in the decades before the global financial crisis – and which long appeared so successful – actually too narrow? Does monetary policy need to put greater effort into preventing financial imbalances from arising? The crisis turned many things upside down and forced both central banks and researchers around the world to rethink their arguments and theories.1 Today I intend to talk about the rather lively discussion conducted among central banks and in the academic world on this issue. This is a discussion that is both interesting and important, but which I feel has made very little impact on the debate in Sweden. While the discussion here in Sweden for the most part is based on the answer being already given, the attitude in the international debate is much more open and inquiring. Most people agree that macroprudential policy should be the first line of defence against financial imbalances. But an increasing number have also begun to take the view that monetary policy may need to give macroprudential policy support by, as it is often called, “leaning against the wind”.
15  See, for instance, ECB Financial Stability Review, June 2009, Special Feature C, “Balance sheet contagion and the transmission of risk in the euro area financial system”; Haldane (2009) “Rethinking the financial system network”, speech delivered at the Financial Student Association, Amsterdam, April. 6  BIS Review 115/2009  inferred data based on stock prices or credit default swap spreads that, in particular, might not behave reliably at times of turmoil or stress in financial markets. It is important to note that the complexities of systemic risk and macro-prudential supervision and the state of current research do not allow the analytical tool kit to be limited to just one or two major models. Given that the framework for macro-prudential analysis is at an early stage of development compared with other areas of economics, there is a need to look at a wider range of models and thereby include relevant risks, imbalances and transmission channels. Systemic risk analysis needs to be supported by a suite of state-of-the-art analytical models and tools, and a conceptual framework for using them. The complex and intertwined economic and financial linkages call for a constant cross-checking of several indicators or measures. In addition, the evolving nature of finance and the pace of innovation also require that the set of tools for systemic risk detection and assessment are constantly adjusted or revised. Many central banks, including the ECB, have in the past developed such models and tools in order to support their regular financial stability analyses and reports.

The chart is based on the same approach as in the previous slide. It is easy to see that periods of poor stock market performance correspond to an appreciation of the Swiss franc, and vice versa. When equities lose value, this generally occurs in an environment of increased uncertainty in the economy and on the financial markets. In such situations, demand for the Swiss franc is particularly strong due to its character as a safe haven. The value of our equity positions is then subjected to a double loss, first the price loss and second the appreciation of the Swiss franc against the foreign currencies in which the equities are denominated. So the diversification effect of our equity investments is diminished, to some extent, by this currency effect. We cannot safeguard ourselves by hedging an appreciation in the Swiss franc because this would be tantamount to selling foreign exchange reserves against Swiss francs, and an investment decision could thus have a monetary policy effect. This example shows how monetary policy considerations limit investment policy’s room for manoeuvre. A certain diversification effect can also exist between equities and gold. In times when uncertainty is high, the gold price often increases, while equity prices come under pressure. The opposite can occur when uncertainty decreases significantly. This was particularly evident last year, when the gold price underwent a significant correction after climbing for many years. Of course we cannot rely on this kind of diversification effect always holding. However, when it does, it is very welcome.
Necessary real exchange rate adjustments will have to occur via wage and price changes while the ability for fiscal policy to reduce the cost of higher unemployment is curtailed. At the same time, labor mobility that could absorb some of the costs remains limited in Europe. Arguably, therefore, far-reaching economic reforms become in fact more difficult to implement once a country loses its independent monetary and fiscal policy inside EMU. This is particularly true for countries with rigid labor markets. The recent electoral results in Germany and France illustrate this dilemma. It is of utmost importance for the Swiss political authorities not to fall into the trap of the kind of ‘help us from ourselves’ line of reasoning that I tried to outline. There may well be political reasons to have a long-term EMU accession strategy in place. But it is a mistake to link the question of domestic economic reform to EMU accession. As I pointed out earlier, in light of Switzerland’s legal, political and historical context, far-reaching reforms will be a formidable challenge, despite the extraordinary asset of a highly flexible labor market. Nonetheless, there is no alternative to tackling independently and directly the domestic economic restructuring process and its consequences if Switzerland is serious to boost its growth potential and thereby safeguard its tradition of broad social and welfare programs.

Given that an opt-out clause for Switzerland would be unlikely, joining the European Union would in fact be tantamount to joining EMU. In other words, many of those who propose EMU membership accept the need aggressively to push on with economic reforms but reject the notion that it can be done independently. The responsibility for introducing reforms is in effect delegated to the European Union. This line of reasoning is flawed and must be dismissed. It is true that the obvious appeal of such a strategy is the ability to blame the European Union for having to introduce unpopular reforms and ultimately transfer the political costs of reforms to Brussels. Nonetheless, as the examples of several member states demonstrate, EMU membership does not guarantee successful reforms. First of all, the European Union, let alone the European Monetary Union were not primarily designed to be vessels to accommodate liberalization efforts. Moreover, in the cases where membership does require legislative adjustments which amount to economic reform steps, EU law only prescribes the formal legislative change. Implementation responsibility typically remains with local authorities on the basis of the subsidiarity principle. This point is reinforced when considered from a macro-economic perspective. Far-reaching domestic reforms often constitute painful macro-economic adjustment processes. With EMU membership, a country loses its monetary policy and at least to some extent its fiscal policy lever. With these important macroeconomic compensating mechanisms no longer available, the cost of domestic economic reform is in fact likely to rise.
Actively choosing the very thing that businesses seem to fear the most is more likely to mean that investment projects that have so far been postponed will instead be cancelled for good. The point, rather, is that for a given duration of uncertainty, it’s better that people are aware of it from the start, rather than being repeatedly surprised at how long the process takes. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  One way of thinking about this situation is that periods of uncertainty – especially those with acute downside risks and that are expected to last only a short period of time – raise the required rate of return on new investments. They therefore have similar effects as a standard increase in the cost of finance: they incentivise firms to meet new demand with labour rather than capital. In the last section I’ll go through some crude arithmetic to get some idea of the scale of such effects and, in that context, comment on the recent strength of employment and, more generally, on the weakness of productivity growth since the financial crisis. The Value of Waiting for News In economic theory, the negative impact of uncertainty on investment depends centrally on the assumption that capital spending is costly to reverse.

Investment and uncertainty: the value of waiting for news Speech given by Ben Broadbent, Deputy Governor Monetary Policy Imperial College Business School, London 20 May 2019  I’ve received helpful comments from colleagues at the Bank of England. I’d particularly like to thank Mette Nielsen for her help in preparing the speech. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Financial Policy Committee or the Monetary Policy Committee. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  Good evening! Today I want to talk about “Brexit uncertainty” and investment. This is hardly a new topic. Indeed I put the words in quotes because the phrase has become so commonplace. At least in the context of the economy one rarely hears one without the other attached to it. There are good reasons for that, of course. We know from general experience – from the empirical evidence in the UK and elsewhere (Chart 1) – that greater uncertainty tends to reduce investment spending. It’s also clear, from direct conversation and from more formal surveys, that many businesses are apprehensive about Brexit. Over half of the respondents to the Bank’s Decision Maker Panel, a survey of over 7,000 firms, now count Brexit as one of their three most important sources of risk (Chart 2).1 According to a survey by the Bank’s Agents the outcome they think will have the most negative economic impact is a no-deal exit with no agreed transition period.
The main policy measures under the programme included the following: •  Privatisation;  •  Decontrol of prices;  •  Decontrol of interest rates;  •  Abolition of exchange controls and a movement to a market-determined exchange rate regime;  •  A shift to the use of indirect instruments of monetary policy;  •  Introduction of Government securities auctions;  •  Establishment of an inter-bank money market;  •  Modernisation of the national payments system;  2  BIS Review 5/2005  •  Strengthening of the legal framework; and  •  Establishment of a stock exchange. Ladies and Gentlemen After a new Government came to power in 1991, its priorities were to restore economic growth through market-based stabilisation policies and promotion of the private sector as a prime-mover of the economy. Consequently, the economy was liberalised, giving market forces a greater role in the allocation of resources. Prices were decontrolled, while subsidies on all consumer items were removed. In addition, the Government embarked on a privatisation programme, whose objectives were to: (a)  Improve efficiency and service delivery in the economy;  (b)  Inject fresh capital and entrepreneurial skills given the ailing nature of the state owned enterprises (SOEs);  (c)  Secure, on a sustainable basis, employment in the privatized companies;  (d)  Enhance the companies’ revenue contribution to the Government budget; and  (e)  Overall, increase the private sector’s contribution to economic growth and, ultimately, poverty reduction.

With respect to the current stability obtaining in the macroeconomic arena, I wish to commend the Government for its commitment to fiscal discipline as shown in its implementation of the 2004 budget. The Government’s adherence to fiscal discipline, has, in part, contributed to macroeconomic stability during 2004. To this end, I wish to challenge the private sector to take advantage of the stable macroeconomic environment to expand their productive capacities. This would enhance the stability in the macroeconomic environment and facilitate higher economic growth and development. Finally, may I also take this opportunity to remind ourselves of the importance of staying the course. By this I mean, consistency and credibility of policy reform. As you maybe aware, experience the world over has clearly shown that for a country to benefit from policy reforms, it is important that policy remains in place for a long time. This is so because a country has to convince the investor community that it will not change course tomorrow and this takes time to do. Also remember that good policies alone do not make the economy grow. It is people who make the economy move. Policies help those that are willing to work. Remember that even in very harsh economic policy environments some people prosper! I thank you! BIS Review 5/2005  5
Chart 12 10-year euro area GDP-weighted sovereign bond spread versus euro OIS rate  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  8/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  (percentages per annum)  Sources: Refinitiv and ECB calculations. Notes: Daily data. The latest observations are for 14 May 2020. This tightening of financial conditions represented a further headwind for the effectiveness of monetary policy. There was an evident risk of adverse liquidity spirals and an overshooting of asset price corrections in many markets, impeding the transmission of monetary policy and endangering financial stability. In the context of a monetary union, the absence of currency risk means that flight-to-safety dynamics have an intrinsic cross-border element, which primarily takes the form of reallocations across sovereign bond markets. In view of the central role of sovereign yields as benchmarks in pricing assets and setting lending rates, non-fundamental volatility in sovereign spreads impairs the transmission of monetary policy. In this context, the PEPP announcement acted as a stabilising force. The announcement of the PEPP has successfully halted the tightening in financial conditions and contributed to a partial reversal in the trend. The embedded flexibility of the PEPP, which allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions, has been a crucial element in fostering its effective market stabilisation function.

Market stabilisation Once investors absorbed the full implications of the pandemic crisis and sought to rebalance portfolios, market liquidity in securities markets dried up and investors looked for safe havens in the context of revisions to future prospects and intrinsically high uncertainty. A marked tightening of overall financial conditions in the euro area (and globally) took hold with the deepening of the coronavirus crisis (Chart 8, left panel). The fall in stock prices, the increase in market-based financing costs for firms and (to some extent) the appreciation of the euro contributed to the tightening that took place between mid-February and mid-March (Chart 8, right panel and Chart 9). This was also evident in the equity and corporate bond markets (Chart 10 and Chart 11). It was also reflected in an increase in the average spread of sovereign yields relative to the OIS curve (Chart 12). Chart 8 Financial conditions in the euro area  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  6/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  (index)  Source: ECB. Notes: Daily data. The financial conditions index (FCI) is constructed as a weighted average of the one-year OIS, the tenyear OIS, the euro area nominal effective exchange rate vis-à-vis 38 trading partners and the Euro Stoxx Broad Stock Exchange Index. All variables are in deviation from their long-term average.