samchain/econo-pairs-v1 huggingface dataset:
Subsequently, within the course of the same survey, they were asked to choose between two possible financial investments, one that gives a fixed nominal return after twelve months, and another that yields a return indexed by inflation, again after one year. Respondents were told that two survey participants would be drawn at random and be paid according to their choice in the investment after twelve months. Theory predicts that respondents would be more likely to pick the inflation-protected investment if they expect higher inflation. Indeed, we find a strong association between expectations and actual choices in the experiment. Furthermore, those who express higher uncertainty about future inflation are also more likely to choose the inflation-protected investment. Both patterns are in accordance with the theory. Interestingly, the connection between expectations and experimental choices is weaker for respondents with low education, numeracy, and financial literacy. Our research thus shows that consumer expectations elicited through surveys are correlated in a meaningful way with actual behavior. We also find that expectations inform behavior in other contexts: for instance, workers who express a higher perceived chance of losing their current job over the next twelve months also search harder for a new job and exhibit a drop in spending plans relative to the present over the same time horizon. The second area of research related to our consumer survey has focused on the formation and updating of inflation expectations.

2  BIS central bankers’ speeches  A robust counterparty framework, specifically one that provides reliable execution capacity of sufficient scale and is facilitated by a liquid and smoothly functioning secondary market for Treasury securities, aids the Desk in pursuing our objectives with respect to the implementation of monetary policy and the activities we undertake in support of the Treasury. But these benefits must be balanced against the cost of maintaining counterparty relationships. Staff time and resources are required to monitor and manage these relationships to ensure that we are getting good value not only in terms of trade execution, but also in terms of market monitoring, an important function that the Desk provides for the benefit of the Federal Reserve System and the Treasury. A large, diverse set of counterparties can contribute to competitive trade execution and richer sources of market intelligence, as well as the increased operational coverage and resiliency that support adaptation to changes in market structure or operating directives. But diversity also entails complexity and requires initial and ongoing investment in infrastructure to support a wider range of firm types. Evaluating and onboarding firms, setting up transactional systems and account arrangements, and monitoring and evaluating counterparty performance and risk all take time and resources that must be balanced against the potential benefits of a larger list.7 One final consideration that bears mention is the concept of an imprimatur that some market participants associate with status as a New York Fed counterparty.
Rather than building up buffers during “the good times”, increased tax revenues associated with the pre-crisis housing booms were treated as structural rather than cyclical, justified by models demonstrating new growth trends. 2  BIS central bankers’ speeches  Taken together, this meant that some of the euro area countries entered the global financial crisis in an unnecessarily vulnerable position. This explains to a large extent the situation we are now in. However, these policy failures were also made possible by a general failure to acknowledge the new governance responsibilities associated with membership of EMU. Put simply, “keeping your own house in order” is necessary, but not sufficient, in a highly integrated monetary union. It is the responsibility of every euro area government to exercise vigorous and effective mutual surveillance over others’ policies. As a crisis in a country like Greece representing only 2% of euro area GDP can become systemic, disregarding EMU governance may come at a high cost to taxpayers. Yet the latter was the attitude prevailing prior to the crisis. The Stability and Growth Pact – the set of EU level rules for guiding fiscal policies – was never properly implemented. Member States tended to adopt a principle of “non-interference” over each others’ policies. Peer pressure, on which the framework was predicated, gave way to peer support. By watering-down of SGP in 2004–05, the largest euro area countries signalled that they had no stake in the rules.

This story was much more unique, as it was part of the first banking crisis in Europe since the EU single market was formed in the early 1990s. Taking advantage of this framework and the prevailing international conditions of ample and cheap credit, these banks grew phenomenally, in less than five years, to almost ten times Iceland’s GDP, with most of the expansion being crossborder – or maybe more aptly put, off-border, as the bulk of both financing and investment took place abroad. The result was very big FX-denominated balance sheets with the usual maturity transformation that banks, as we know them, are all about. However, the safety net that we have in national settings to back them up, including LOLR facilities, was not there. It was an accident waiting to happen, and so it did. I will be very brief on how the failure of these cross-border banks was dealt with and the lessons learned from it. It is now more widely known in our circles than it was to begin with and less controversial. For more, I can refer you to various publications and speeches of mine and others. But the main reason is that, as far as Iceland is concerned, the problem is solved for the near future: we are simply not going to do it. We are not going to establish international banks headquartered in a very small country with its own currency without an access to a sufficient regional or international financial safety net.
It is clear that some of the old beliefs will remain more or less intact: for instance, the idea that fiscal policy is limited as a stabilization tool. There are, however, two areas where I see more changes. BIS central bankers’ speeches  1  First, the conduct of monetary policy, through the implementation of non-conventional monetary policies; and, second, the monitoring of the efficiency of financial markets and the banking sector, and their interaction with macroeconomic stability. Let me comment on these two issues. Non-conventional monetary policies At the outset of the crisis, all central banks reacted using conventional monetary policies. First, they reduced interest rates in a rather aggressive way to prevent the disinflationary process from translating into deflation. The outcome of these decisions is that official rates in the main developed economies (Euro area, United States, Japan and United Kingdom) stand now at values very close to zero. At the same time, faced with the freeze of interbank markets, the main central banks, including the Fed and the ECB, had to take on, directly, the task of redistributing liquidity. In the early stages, the Fed and the ECB provided a generous monetary base to meet the gross needs of banks. The ECB used its flexible array of financial instruments, while the Fed was forced to adapt its operational framework to introduce new forms of intervention. However, when the crisis worsened after the Lehman Brothers crisis, it became necessary to take stronger action. This required the use of new, non-conventional, monetary policy measures.

One of the most important elements of the regulatory changes since the crisis is that we have adopted an approach of seeking to align those incentives with our public interest objectives as well as the private interest of the firm. You can also see this in our approach to the too big or too difficult to fail problem where the actions we have taken on loss absorbency are designed to create the right oversight incentives for shareholders and bondholders by literally putting them at risk of loss. This will without doubt have an effect on culture. I want to end with a few broader reflections on the role of culture. The basic difference between the role of the regulator and management of firms is that our objective is framed exclusively in terms of the public interest. For firms, it is important to recognise that a sustainable and viable business model is one that provides an acceptable rate of return to those who take the risk of providing the necessary loss absorbing capacity, typically its risk capital. Firms exist to service customers who make up the public interest, which of course means that service includes the notion of not exploiting customers, a value one might expect to be given in an organisation’s culture. Today, the public perception of banking, and some other areas of finance, remains too much towards the exploitative “Greed is good” end of the spectrum.
In this context, the parallel commitments of the major political parties to the continued provision of free health services for all and to prudent fiscal policies are not easy to reconcile. Much the same can be said of higher education, which is characterized by a student subsidy system that is probably unique. The University of Malta and MCAST have together been allocated Lm15.5 million for 2007, compared with no less than Lm8 million budgeted for students’ maintenance grants. Funds that would permit these institutions to offer better quality programmes, and in the process hopefully raise the number of science and technology graduates from its current inadequate level, are instead paid to students regardless of their financial means. Changes needed in the pattern of resource allocation This generous approach to the management of public finances has meant that recurrent revenue, although higher year after year, has often not been able to keep up with recurrent expenditure. For example, in 2005 expenditure amounted to 41% of GDP, roughly matching revenue at 42%. As a  1  A recent paper on public sector efficiency in the new EU Member States gives Malta a relatively high score in terms of public sector performance that measures outcomes. However, when performance is related to the inputs used to gauge the efficiency of the State, Malta ranks 21st in a pool of 24 countries including all 10 new Member States, Greece, Portugal, Ireland and a number of emerging market economies.

Michael C Bonello: Policy challenges beyond the euro Speech by Mr Michael C Bonello, Governor of the Central Bank of Malta, at the Annual Dinner of the Malta Institute of Financial Services, Saint Julian’s, 17 November 2006. *  *  *  I should first of all like to thank you, Mr President, and your Council for the opportunity to share my thoughts once again with such a distinguished audience. Before I do so, however, I would like to commend the Institute of Financial Services (IFS) for its admirable capacity to reinvent itself in response to the changing demands of the marketplace. This year, for example, the Institute has renamed itself as the IFS School of Finance. I have discovered that this apparently cosmetic change has a very significant meaning, in that the Institute in the UK is now empowered to award degrees. IFS Malta, on its part, has extended its reach beyond our shores and is cooperating with the Romanian Banking Institute in the delivery of one of its academic programmes in that soon-to-be EU member country. I am sure all your other guests will join me in wishing you and your Council every success in your continuing efforts to promote higher professional standards in the financial sector. Since Malta joined the EU in 2004, and particularly since the Maltese lira entered ERM II last year, the Central Bank of Malta has been making the case for an early adoption of the euro.
Not only are bond term premia depressed due to quantitative easing both here and abroad, but the low inflation environment is also likely a contributing factor. If investors perceive that the risk of significantly higher inflation has fallen over time as inflation has persistently undershot 2 percent, they should demand lower bond term premia as compensation for inflation risk. Finally, while inverted yield curves have typically preceded recessions, I am unaware of any causal element in that relationship. For example, I don’t believe that banks become unwilling to lend when the yield curve inverts and that this tightening of credit availability “causes” a recession. I think it is noteworthy that in the current environment, higher short-term interest rates tend to raise—not lower—the banking industry’s profitability. This is demonstrated, in part, by the strong performance of bank stocks in 2017 as the Federal Reserve raised short-term interest rates. As I see it, the Treasury yield curve becomes inverted when investors believe that short-term real interest rates are high and monetary policy is tight. Investors anticipate that such a regime will slow the economy and be followed by a reduction in short-term rates. Because these expectations turn out to be validated eventually, we observe that inverted yield curves precede and signal recessions. But, we are not in this situation currently. Investors expect short-term interest rates to rise, not drop, and to remain higher in the future than they are now. Despite the flatter yield curve, the consensus view continues to be that monetary policy is not yet tight.

7 See William C. Dudley, Lessons from the Financial Crisis. 8 Since the late 1940s, any time the three-month moving average of the unemployment rate increased by 0.3  percentage points or more, it was a sign that the economy was either already in or about to enter recession. The cumulative rise in the monthly unemployment rate from its low prior to the official start of the recession to its peak has been at least 2 percentage points. 9 See Joint Committee on Taxation, Macroeconomic Analysis of the Conference Agreement for H.R. 1, the ‘Tax  Cuts and Jobs Act’, December 22, 2017. 10 Congress of the United States, Congressional Budget Office, An Update to the Budget and Economic Outlook:  2017 to 2027, June 2017. 6/6  BIS central bankers' speeches
One might therefore expect this generally to support the sustainability of global debt overall, though given the uncertainties of estimates and forecasts of trend real rates, there are clearly risks to this assessment. Composition  From a financial stability viewpoint, the composition of the debt stock matters. Even if the aggregate level of debt is not growing and there are reasons to believe its sustainability may generally be supported by relatively low rates going forward, components of the debt stock can vary greatly in riskiness and vulnerability to correction. The composition of the global debt stock has changed since the crisis. Overall, advanced economy private sector debt has reduced a little since the crisis. The increase in advanced economy debt has been in the public sector. I do not want here to enter into a discussion of fiscal sustainability and limits to government borrowing. But I would observe, from a narrow financial stability perspective, that growth of own currency sovereign debt, especially when financed internally, is not a good predictor of financial crises. Elevated own currency sovereign debt can certainly weigh very heavily on economies but its adverse effects are usually chronic rather acute. The rotation of debt in advanced economies from the private sector to the government, post crisis, makes it more likely that any correction will lead to chronic rather than acute problems.11  By contrast, the decline in the aggregate level of advanced economy private debt may not be as comforting as it is appears.

4  For example, the Capital Requirements Regulation for banks, and the Solvency 2 Delegated Act for insurers and the European Market Infrastructure Regulation for CCPs. 5 See for example, “The evolution of the financial services regulation in a post-Brexit Europe" - Speech by Robert Ophèle, Chairman of the Autorité des marches financiers – 13 November 2017 “This has led to a hypertrophy or swelling of regulations that - probably to avoid national drifts - has entered a stage of extreme luxury of details… and has led to a rigidifying of regulation of a very damaging sort.”  5  All speeches are available online at www.bankofengland.co.uk/speeches  5  Debt, its level, its growth, its composition and its sustainability lies at the centre of the financial stability mandate. Modern societies and economies are built around the claims we hold on each other. A very large proportion of those claims are expressed as financial claims to be honoured in the future. The future, of course, does not always turn out to be what we expect and the value of our claims has sometimes to be adjusted downwards. Some financial claims, like equity, adjust the value of the return relatively smoothly. Debt liabilities, however, are fixed and amplify the impact of any negative shock to the income or assets of the debtor. And if the impact cannot be accommodated, the result can be a painful write-down or deleveraging of the economy.
In fact, I am concerned that inflation will not pick up quickly enough. As I noted, we have been stuck at 1 percent inflation since early 2013, and there is little indication of a pickup in the recent data. Low inflation is just as economically costly as high inflation. When we set an inflation target of 2 percent, we need to hit our target without too much delay. Simply put, we need to average 2 percent inflation over the medium term. Accordingly, the current 1 percent inflation situation calls for extended policy accommodation. If the Fed embarked prematurely on more restrictive monetary policy conditions, these adverse actions would work to reduce inflation to further unacceptably low levels. That’s going in the wrong direction.2 Financial stability and monetary policy It is easy and most natural for a Fed policymaker to talk about inflation. Price stability is one of the explicit goals of monetary policy as mandated by the U.S. Congress. Financial stability risks are more complicated. How does financial stability dovetail with the Fed’s dual mandate? There is clearly an interdependent relationship between them. A strong economy with low inflation provides a key stabilizing force for beneficial credit intermediation and robust financial market functioning. At the same time, stable and well-functioning financial markets are essential for achieving maximum employment and price stability. The global experience since 2008 reinforces this critical interplay between monetary and financial conditions.

Recent Monetary Policy Actions As you all know, in response to the unusual economic circumstances generated by the financial crisis and the Great Recession, the FOMC lowered our traditional policy tool – the target federal funds rate – to near-zero levels in December 2008 and has kept it there since. With the fed funds rate constrained at this lower bound, and economic conditions requiring additional policy accommodation, the Committee also deployed nontraditional policy tools to stimulate activity. We embarked upon large-scale purchases of long-term Treasury securities and agency mortgage-backed securities. We also used new communications tools to provide forward guidance about how long short-term interest rates will essentially remain at their lower bound of zero. While large-scale asset purchases and forward guidance are unconventional tools, their effect on interest rates and real economic activity is quite conventional. Both tools are aimed at stimulating economic activity through lower long-term interest rates. Through arbitrage and portfolio rebalancing, lower rates in one market are transmitted to other interest rates faced by investors, nonfinancial firms and consumers. Lower rates are also transmitted across the asset and maturity spectrum. There is significant evidence that the FOMC’s policies have been helpful in reducing financing costs rates paid by firms and consumers and, more generally, in supporting aggregate demand in the face of substantial economic headwinds over the past six years. It should be noted that economic activity picked up momentum in the second half of 2013.
Second, persistency has declined since the inflation target was introduced. One possible explanation is that monetary policy has gained greater credibility. There is more confidence than previously that monetary policy endeavours to bring inflation back to the target following shocks. Another possible explanation is that, since the mid-1990s, the shocks have been less extensive than previously, partly because wage formation has functioned better than before. A conceivable conclusion from a monetary policy point of view is that it can nevertheless be risky to underestimate persistency. This is because the costs of bringing inflation down are high once it has been allowed to overshoot the target. It is therefore better to assume a too high rather than a too low level of persistency. Thoughts ahead of collective bargaining in 2010 I would now like to make some personal observations on a matter that may be important ahead of the next major round of collective bargaining in 2010 regarding which sector should set the norm for wage increases. My view is that the sector that is exposed to international competition should also set the norm for wage development in collective bargaining in 2010. There has recently been a lot of discussion about the current wage formation system.2 One question has been whether the system with the manufacturing industry as the sole norm setter is the most appropriate and sustainable option given that we now have a floating exchange rate instead of a fixed exchange rate.

But our system is also remarkable for the magnitude of the costs, the incidence of those costs across the economy, the number of uninsured, and our poor performance on health outcomes even compared with less wealthy economies. To cite just one example, infant mortality rates in the United States are more than two times the level in Japan. In a world in which economic performance depends increasingly on flexibility and adaptability to change, we probably need to move to a system in which a change in employer or profession does not carry the substantial uncertainty it does today about how one will provide for one’s health and that of one’s family. This seems fundamental to the willingness of Americans to support the level of openness to trade and to change that is an essential part of our present and our future. A defining feature of the American economy has been our embrace of the market, and the recognition that market forces are, in general, the most effective way of allocating resources. But markets cannot solve all problems, and government policy plays an important role in how well markets function. The test of policy is not just in the incentives we create for competition and innovation, but also in the clarity and stability offered by the regulatory framework and in the quality of public goods that governments deliver.