samchain/econo-pairs-v1 huggingface dataset:
But it also acknowledges that inflation will on occasions deviate from its target as a result of shocks and disturbances, and that “...attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output”.1 Although the language is arcane, the meaning is clear: monetary policy should try to prevent damaging booms and busts in output and employment. This secondary objective matters and has been central to the recent conduct of monetary policy. To repeat: we could have delivered lower inflation over recent years, but only at the  1  The relevant clause of the remit states “The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.” See http://www.hmtreasury.gov.uk/d/open_letter_from_chx_to_boe_22032011.pdf  2  BIS central bankers’ speeches  expense of providing less support to growth and employment in the midst of the most significant economic downturn of our generation. That monetary policy should be concerned with growth as well as inflation is nothing new. Indeed, way back in 1997 – the year that the MPC was first established – Mervyn King, then just the lowly Chief Economist of the Bank of England, referred to the value of the “constrained discretion” built into the inflation targeting regime.2 The “discretion” relates to the speed with which inflation is returned to target.

In Chile, activity and domestic demand, specially consumption, have not worsened significantly. This does not mean that our vision of the effects that the crisis in the developed world will have on our economy or the rest of the world has changed. However, it is a fact that activity at the beginning of the year is at a higher level than we envisaged a few months ago. On the other hand, this has been compounded by an increase in the oil price. Political tensions in the Middle East have again put pressure on this price, thus affecting domestic prices. The effects of a higher oil price can be interpreted at least twofold, with opposing implications for monetary policy. On one hand, in a situation of tight output gaps – as is the case of many emerging economies, Chile among them – an increase in the price of energy may exacerbate domestic inflationary pressure, making the dynamics of inflation more complex and demanding great care when assessing the evolution of the inflation trend. On the other hand, in the face of existing risk scenarios, an increase in the oil price also has a negative effect on world activity. If we take into account the fragile state of households, businesses and governments in the developed world, a higher price of energy may further weaken their position and lead to a more lasting and deeper economic fragility.
We need to look at the fundamental determinants of money demand. Ideally, we should have a full and comprehensive model of portfolio allocation and choices which, as an aside, would produce a determination of the demand for money. We might be a long way from building such a model. But we can have some intuitions. We could start from the fact that money is both substitutable and complementary to financial assets. Because it is substitutable, money demand depends on changes in relative returns - i.e. the actual and expected moves in interest rates. But money is also a complement to financial assets, and as such reacts to permanent changes in the supply, availability and characteristics of those assets. Our economies are becoming more and more "financial" in the sense that the ratio of financial wealth to GDP is constantly increasing. Since economic agents - especially financial intermediaries and corporates - need to keep part of their total financial assets in liquid holdings, there may be a structural increase in the demand for money (everything equal). The euro and the integration of European capital markets may have accelerated this evolution. 2  BIS Review 108/2006  This could help explain the apparent break in the trend of the income velocity of money that took place in the euro area in 2000/2001. In effect, since 2001, income velocity has been declining by 3.5% a year, much faster than the rate embedded in the reference value.

The implication is the need to cross-check the information on inflationary pressures and risks to price stability; this cross-checking implies that we bring together and compare different analytical strategies and that we use systematically all the information relevant to decision-making. Of course, monetary policy does not react mechanically to monetary developments, but rather responds to the information in monetary aggregates that is relevant for maintaining price stability over the medium term. This is the rationale behind the definition of "a reference value" for monetary aggregates. The monetary pillar supports a risk management approach to monetary policy. It allows for an early assessment and detection of potential imbalances. It sheds light on those risks at a longer time horizon than the one usually contemplated by monetary policy, but still relevant for the ultimate objective of price stability. This is of special significance and importance when financial imbalances build up in the economy, which are fueled by excess money or liquidity growth. Unwinding of those imbalances can be brutal and discontinuous – the so called non linear reaction – and, as such, very destabilizing. Empirical evidence suggests that asset booms have typically occurred when money and credit growth were above their long-term average. Whatever the loss function and ultimate objectives of Central Bankers, all would agree that monetary policy should not willingly contribute to the formation of such credit and asset booms.
Because of the infamous “long and variable” lags between changes in interest rates and their impact on inflation, the MPC does not yet have much of a track record in terms of inflation outturns. But since the target given to the MPC is for inflation, let me start there. Between June 1997 and March 1999 (the latest month for which inflation has been published) RPIX inflation averaged 2.7%. During that period, inflation ranged from a low of 2.4% to a high of 3.2%. Over the past nine months it has remained within 0.2 percentage points of the target, a remarkable degree of stability. It is most unlikely that inflation can remain, month-by-month, as close to the target as that. Unexpected movements in the exchange rate, oil or other commodity prices, indirect tax rates or a multitude of other influences could all lead to divergences of inflation from target. Because of the lags I mentioned earlier, it would take the MPC some time to bring inflation back to the target level. What matters, however, is not relatively small month-to-month movements in the inflation rate, but the expectation that inflation will average 22% over a number of years. As part of the arrangements for accountability, the Governor, on behalf of the MPC, is required to write an open letter to the Chancellor whenever inflation deviates by more than a percentage point from the target.

The aim is to ensure that the inflation generation is replaced by a new generation, a generation for whom economic success will depend more on their own efforts than on the accidental consequences of high and unstable inflation for the distribution of wealth – whether in housing, pensions or financial savings. Conclusions So what should we make of the Monetary Policy Committee after two years? As all parents know, second birthdays are often the prelude to a difficult period: the “terrible twos”. But I am confident that, whatever difficulties lie ahead, the Chancellor will be able to take some pride in his offspring. Philip Ziegler has described the British constitution as an accumulation of “instantly invented precedents”. Indeed, there is a tradition in the UK of making radical reforms in such a way that it is impossible, after a few years, to imagine that things were done any other way. That I predict will be true of the MPC. The whole monetary policy process is today systematic and professional in a way that was unimaginable less than ten years ago. Then, meetings between the Chancellor and Governor to discuss interest rates were often called at only a few hours notice. Now, analysis, meetings of the MPC and the publication of both the decision and the reasons for it proceed on a pre-announced timetable. The change has significantly reduced the uncertainty facing financial markets and enhanced the quality of the decisions themselves.
Between now and the 15 November, the Bank will therefore be running a consultation programme that will provide the public with a greater familiarity with polymer banknotes. The consultation will, in turn, provide us with a better understanding of the public’s views on the proposed change and whether such a change would meet with broad public acceptance. BIS central bankers’ speeches  1  We will be holding around 50 events across the UK to enable the public to see and feel examples of polymer notes, and to deliver feedback to the Bank. We will hold events in 13 major shopping centres to allow shoppers to see and handle specimen notes. And we will be running over 30 discussion events with audiences including regional chambers of commerce and retailers. A market research company will separately be conducting another 36 focus groups and carrying out a face-to-face survey with 2,000 people to collect further feedback. We will also publish a range of useful material on our website including a facility for the public to provide feedback directly to us. And there will be a specific display about polymer in the Bank’s museum for anyone visiting London who wishes to learn more. In parallel with the public consultation we will conduct further outreach with the cash handling industry, to confirm our understanding of the impact on industry of a switch to polymer.

The various lockdown measures have accelerated existing trends in digitalisation and automation. This will have consequences for areas of central bank activity such as payment systems and the use of big data and artificial intelligence techniques in financial markets. With all these trends, cybersecurity has become more important. Possibly the most important lesson from the crisis is that there is no such thing as being overprepared. The SNB must remain flexible and agile. We must continue to identify and analyse the key trends, invest in new technologies, and – inasmuch as this is possible – prepare for the future. 13 14  SCION is a new internet architecture, which enhances the security and reliability of internet communications. A DDoS attack is a special type of cybercrime in which attackers deliberately seek to make a service or server unavailable.
This has mainly been achieved by establishing the sovereign wealth fund and a fiscal rule imposing a constraint on oil revenue spending. The Norwegian parliament passed the Act relating to the fund in 1990. Under the Act, the net budget surplus, including oil revenues, is transferred to the fund, and invested in international markets. The policy guidelines were clarified in 2001 through the introduction of the fiscal rule. Under these guidelines, government spending of oil revenues – measured by the non-oil budget  BIS central bankers’ speeches  1  deficit – is limited to the expected real return on the fund – estimated at 4 percent annually. The idea is to leave the capital in the fund untouched, saving it for future generations. The fiscal rule provided for a gradual phasing in of oil revenues. Over time, we would have to expect the real krone exchange rate to appreciate as a result. However, due to the fund mechanism and the fiscal rule, actual spending is decoupled from current petroleum revenues. This has curbed the appreciation of the krone and thus reduced fluctuations in the exchange rate. Compared to other resource-based economies, the real krone exchange rate has remained relatively stable, especially during the period of substantial increases in oil prices (cf. diagram). Let me elaborate on the transactions that actually take place. All revenues from the sale of oil and gas are originally in foreign currency.

Øystein Olsen: Oil and the Norwegian economy – the challenges ahead Speech by Mr Øystein Olsen, Governor of the Norges Bank (Central Bank of Norway), at a lunch hosted by Danske Bank Markets, New York City, 27 March 2015. *  *  *  Accompanying slides can be found on the Norges Bank’s website: Slides (PDF). It’s a great pleasure to be in New York City again and an honour to be invited to give a lunch presentation here today. As Norges Bank, a week ago, published its latest monetary policy report, the economic outlook and the considerations behind the interest rate decision naturally warrant some attention in my speech today. First, however, I would like to give some background information on the economic policy framework in Norway, focusing on the sovereign wealth fund – the Government Pension Fund Global – the fiscal rule and Norges Bank’s foreign exchange transfers to the fund. Norway is a small, open, natural resource-rich economy. About a quarter of our GDP is related to oil and gas extraction, and a large share of our petroleum production is exported. The oil and gas industry has played a vital role for the strong growth in our economy over the past 40 years. When the first oil was brought to the surface in 1971, GDP per capita in Norway was lower than the average for a western economy. The picture has reversed since then. We have gradually caught up to the wealthiest nations.
Underlying inflation in the fourth quarter of 2002 Projections published at different times and actual inflation 3  3 Actual price inflation  2.5  2.5  2  2  1.5  1.5  1  1  0.5  0.5  0  0  0 1 01 01 01 01 01 02 02 02 02 02 02 03 l l r y v 0 n 0 ar v y v Ju Sep No Jan Ma Ma Ju Sep No J an No Ja M Ma  Sources: Statistics Norway and Norges Bank SG Gausdal 31.01.03  The underlying rise in prices has slowed in recent months, down to 2.0 per cent in the fourth quarter of 2002. The projection for the underlying rise in prices in that quarter was revised down in autumn 2001, from 2.5 per cent to 2.1 per cent. Since then, our projections have varied between 2.0 and 2.2 per cent. The inflation projections for the fourth quarter of 2002 have been relatively stable since the end of 2000 and close to the actual level of inflation. The low level of inflation is closely related to specific economic developments that have taken place over the past two years. Three important disturbances have influenced the 22 months of inflation targeting that lie behind us: strong wage growth, the global downturn and a considerable appreciation of the krone. The wage settlement in 2002 resulted in the highest increase in real wages in a generation.

When we look at future prospects, a good estimate for the output gap can therefore provide a better indication of the outlook for wage and price inflation. Both these simple measures are based on stylised assumptions concerning productivity growth and must therefore be used with caution. Wage gap1) and output gap Per cent 4  4  3  3  Output gap  2  2  1  1  Wage gap  0  0  -1  -1 -2  -2 1) Up to 2000: difference between rise in hourly labour costs in manufacturing in Norway and among trading partners. Thereafter growth in excess of 4.5 per cent. -3 -4 1991  1992  1993  1994  1995  1996  1997  1998  1999  2000  2001  -3 -4  2002  Sources: Statistics Norway, TRCIS/IMF and Norges Bank SG Gausdal 31.01.03  The high level of wage growth in 2002 implied a tight monetary policy. The interest rate differential against trading partners widened. The krone appreciated further. Relationships in the foreign exchange market are unstable, but there are a number of fundamental forces that influence the krone. High oil prices and the phasing in of petroleum revenues into the Norwegian economy are part of the explanation, but the predominant factor is probably the cyclical divergence between Norway and abroad. Krone exchange rate1) and 12-month interest rate differential against trading partners.
The IMF also finds that the probability of bubbles bursting in the housing market is greater than is the case for stock markets. A decline in the housing market also has a greater impact on output and employment. Housing wealth has a greater impact on consumption than other assets. The contagion effects via the banking system are stronger because housing and property loans normally account for a substantial share of banks’ loans. A sharp rise in asset prices and debt build-up may pose a risk to economic stability. To minimise this risk, there may be situations when it is appropriate to apply a somewhat longer horizon than the normal two-year horizon for achieving the inflation target. A precondition for this is that financial market participants are confident that inflation will be low and stable over time. The current situation Today, private sector debt and house prices are at a historically high level. Banks’ loan losses will probably rise. However, our assessment is that the banking sector is reasonably well equipped to cope with the increase. For a long time, household debt in Norway has risen at a far higher rate than income growth. The debt burden has therefore risen rapidly and is high in a historical context. Partly as a result of the reduction in interest rates, interest expenses are moderate. High and growing debt means, however, that households are vulnerable to sharp increases in interest rates or a substantial rise in unemployment. Some groups of households are particularly at risk.

However, private and public consumption also picked up, after having registered only lacklustre growth in the first half of the year. Momentum in equipment investment, by contrast, remained weak. In part, growth was also boosted by special factors, including an unusually large increase in value added in the healthcare industry. Despite the positive developments of the third quarter, utilisation of economic capacity remains unsatisfactory. We are assuming that growth will be markedly lower in the fourth quarter. In particular, export demand and value added in manufacturing are likely to contribute significantly less to growth than in the previous quarter. As a result of the comprehensive revision of the national accounts, the reported figures for previous quarters are higher, and therefore GDP growth for the current year should also be somewhat higher than we assumed in September, by 1.5– 2%. However, the underlying economic momentum has not changed. For next year we expect to see GDP growth of about 2%. Under this assumption, the underutilisation of economic capacity will decline only gradually. We are also expecting only a modest recovery on the labour market. Monetary and financial conditions I will now turn to monetary and financial conditions. After a long period in negative territory, inflation has been hovering around zero for over a year. The minimum exchange rate has prevented deflationary developments, but inflation still lies towards the bottom of the range that we equate with price stability. Moreover, according to the available surveys, medium-term inflation expectations have fallen steadily in recent years.
The crisis and the period before the crisis clearly illustrate the tendencies towards exaggerated cyclical behaviour that often characterise the financial markets. In periods of strong growth, there is usually an increase in demand for loans for corporate investments and property purchases. It also seems to be common for awareness of risks to decrease during such an upturn. Lenders often relax requirements for creditworthiness at the same time as they often take on too much debt themselves. When problems subsequently arise as a result of some borrowers finding it difficult to repay their loans, there can be an overreaction in the other direction, with severe credit tightening as a consequence. But systemic risk is not just a matter of a tendency towards exaggerated cyclical behaviour in credit granting. It is also a matter of how the concentration of risk and the links between different parts of the financial system at any given time affect the risk of a crisis hitting the system as whole. For example, several banks can take the same kind of risk or be dependent on the same funding sources. The high degree of interconnectedness in the financial system – between different institutions and between different markets– increases the risk of contagion when financial problems arise. 5 Circumstances that need not constitute a risk on the micro level can thus become risks on the macro level. Not knowing which risks will trigger systemic crises is in the nature of things.

My assessment is that leverage ratios and countercyclical buffers are good instruments for the management of systemic risks which will help us strengthen the financial system when the need arises. But they have their limitations. Both of these instruments are indiscriminate and it will be difficult to determine when it will be appropriate to increase or decrease the countercyclical capital buffers. If we are to be able to combat risks efficiently, we will also need instruments that can be directed towards the areas in which the problems exist. Variable risk weighting – a usable instrument One instrument that a growing group of countries is choosing to introduce is variable risk weighting for lending. 11 These can be seen as a complement to countercyclical capital buffers and are aimed at counteracting the build-up of risks in lending to specific sectors. Varying risk weighting is thus a more focused instrument than countercyclical capital buffers. 9  This work is being conducted within the framework of the government’s inquiry Fi 2012:05 “Inquiry on capital adequacy regulations”, to be concluded in the spring of 2013. 10  This capital conservation buffer is to be held in the form of core Tier 1 capital and is to consist of 2.5 per cent of the risk-weighted assets. 11  In the United Kingdom, the Financial Policy Committee has been given a mandate to introduce risk weighting, so-called sectoral capital requirements, see Financial Policy Committee statement, March 2012. See also Bank of England Instruments of macroprudential policy, a discussion paper, December 2011.