samchain/econo-pairs-v1 huggingface dataset:
Christine Lagarde: ECB press conference - introductory statement Introductory statement by Ms Christine Lagarde, President of the European Central Bank, and Mr Luis de Guindos, Vice-President of the European Central Bank, Frankfurt am Main, 4 May 2023. *** Good afternoon, the Vice-President and I welcome you to our press conference. The inflation outlook continues to be too high for too long. In light of the ongoing high inflation pressures, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points. Overall, the incoming information broadly supports the assessment of the medium-term inflation outlook that we formed at our previous meeting. Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, our past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain. Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two per cent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our policy rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.

Our latest bank lending survey reported a tightening of overall credit standards, which was stronger than banks had expected in the previous round and suggests that lending may weaken further. Weak lending has meant that money growth has also continued to decline. Conclusion Summing up, the inflation outlook continues to be too high for too long. In light of the ongoing high inflation pressures, the Governing Council today decided to raise the three key ECB interest rates by 25 basis points. Overall, the incoming information broadly supports the assessment of the medium-term inflation outlook that we formed at our previous meeting. Headline inflation has declined over recent months, but underlying price pressures remain strong. At the same time, our past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain. Our future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our two per cent medium-term target and will be kept at those levels for as long as necessary. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our policy rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.
To the one side, falling energy prices are weakening a key driver of underlying inflation pressures. Imported energy prices have played a central role in pushing up inflation for all economic sectors, given the huge energy shock we have faced. This is why measures of underlying inflation that capture the more persistent effects of energy costs are already showing a decline. [2] To the other side, increasing domestic price pressures could offset some of this disinflationary impulse. Measures of underlying inflation that capture items sensitive to the business cycle – such as Supercore[3] – or items with low import content are still strengthening. If this continues and aggregate demand picks up from its current compressed levels, we could see a handover from imported to domestic price pressures that keeps overall price pressures high. The key issue in determining which of these forces wins out will be developments in wages. The euro area has suffered a large terms-of-trade loss owing to rising energy prices, the cost of which must ultimately be shared between firms and workers. And it is important that there is fair burden sharing between them, with both accepting that they cannot fully recover the income that the euro area has paid to the rest of the world and the ensuing loss of output. So far, real wages have decreased substantially, while firms’ profit margins have expanded in many sectors. But the labour market is quite tight, labour shortages are increasing, and the terms-of-trade shock has largely reversed.

The Global Economic Context Over the past quarter century, a great deal of research has gone into understanding the causes and consequences of the zero lower bound.1 The achievement of low inflation in the United States—which, all else equal, implied lower interest rates—coupled with Japan’s long period of deflation and near-zero interest rates, reignited concern about the ZLB back in the 1990s. And the experience of the global financial crisis and its aftermath—with many advanced economies facing, or in some cases, crossing the zero lower bound—has moved this from a mostly theoretical exercise to a very practical one. An added impetus to this research has been the growing evidence that the neutral rate of interest rate has fallen significantly. I, working with various coauthors, have devoted a significant chunk of my academic career to studying r-star, or the long-run neutral rate of interest, and its implications for monetary policy. Our current estimates of r-star in the United States are around half a percent. That’s actually now lower than at any time before the Great Recession.2 We’ve seen similar declines in r-star in other advanced economies, including in Japan and the euro area. As shown in Figure 1, the weighted average of estimates of r-star for Canada, the euro area, Japan, the United Kingdom, and the United States is now also half a percent, nearly 2 percentage points below where it stood at the turn of this century. These very low neutral rates are a result of long-term structural factors slowing growth.
House prices posted positive dynamics, albeit significantly slower than those seen in many EU countries (Figures 35 and 36), on the back of higher household income, individuals’ improved expectations on their financial standing and of further extremely low interest rates (Figure 37). Nevertheless, only a small part of real estate transactions are loanfinanced. In the medium run, the potential risks that may arise from mortgage-backed loans refer to the high interest rate sensitivity in the case of debtors having taken housing loans (Figure 38). The five risks summarised above are cyclical, being related to the developments in the business and financial cycles. They can be amplified, in the future, by a potential deceleration of GDP dynamics, which will also raise the issue of the next growth engine (after the engine of domestic consumption slows down). The increase in financial intermediation for the corporate sector could be this alternative driver, but only in the context of improving payment discipline, lower uncertainties and a reversal to a positive market sentiment. These five cyclical risks are compounded by a fundamental, structural problem specific not only to the economy, but also to the Romanian society, i.e. the demographic problem. This is generated, on the one hand, by the natural decline in population, and, on the other hand, by emigration. Although the GDP hit a 25-year high, Romania continues to see further emigration and ageing population.

Additionally, within the National Committee for Macroprudential Oversight, the NBR has underlined the financial stability risks deriving from soft budget constraints in the economy. In order to strengthen the economy’s resilience to external shocks, particularly those related to credit risk, it is necessary to have in place a prudent and balanced mix of economic policies that should pursue the return to the medium-term objective (structural deficit narrowing) and the improvement of payment discipline economy-wide. 9  Charts  Figure 1. Public debt (2017) 180  Figure 2. Romania: Average residual maturity of public debt  percent of GDP  9  years  8  160  5.8  6  120  8.0  8.1  5.7  5.8  5.8  3.5  3.5  2016  Jul.17  7.2  7 140  7.8  6.2 5.3  5 4.0  4.1  4.4  4  100  3.8 3  80  2 60  3.0  3.0  2014  2015  2.4 1.6  1.7  2011  2012  1  40  0 2013  20  Source: AMECO  EU EA  GR IT PT BE CY ES FR UK AT HR SI IE HU DE FI NL MT PL SK LT RO SE LV DK CZ BG LU EE  0  average residual maturity – total debt average residual maturity – domestically issued debt average residual maturity – eurobonds Source: MPF 2  Figure 3.
Moving the fed funds rate into the target range During normalization, the Fed intends to move the fed funds rate into the target range established by the FOMC primarily by adjusting the IOER rate. A key development in the conduct of monetary policy in recent years was the introduction of the Fed’s ability to pay interest on reserve balances held by depository institutions. In the environment of elevated reserve balances that resulted from the Fed’s asset purchases, the payment of IOER – currently at a rate of ¼ percent – has helped to keep the fed funds rate within its target range. 5 The IOER rate is the rate of return on a riskless overnight deposit held at the Fed. As such, it may be thought of as the opportunity cost of making an alternative investment, such as a loan or the purchase of a security. Accordingly, if all money market participants were eligible to earn interest on reserves, money market rates would likely be at least as high as the IOER rate; no institution would want to lend to a private entity at a lower rate. Even without universal access to IOER, in the absence of frictions, competition would be expected to lift money market rates up to the level of the IOER rate, since banks would make an arbitrage profit on any funds they borrow at a lower rate and deposit at the Fed.

The FR 2420 data is used to support the implementation of monetary policy and the analysis of money market conditions. 5  The Board of Governors of the Federal Reserve System is responsible for setting the rate of interest on reserves. Since December 16, 2008, the interest rates on required reserve balances and excess reserve balances have both been ¼ percent, but the rates need not be the same. More information can be found in Regulation D. See http://federalreserve.gov/bankinforeg/reglisting.htm#D. BIS central bankers’ speeches  3  transaction I just described is not riskless. As a result, many lenders limit their risk exposure to any individual bank, reducing the force of competition in the market for funds. 6 In addition, while banks do not need economic capital to conduct this arbitrage, they do face regulatory balance sheet costs from expanding their assets, even in the form of excess reserves, that is, cash. Some of these costs are direct, such as the FDIC fees paid by domestic banks on their liabilities less capital and transactions costs in brokered markets, while others relate to the costs associated with regulatory requirements on capital and liquidity ratios. Even if the market for funds were perfectly competitive, these costs should drive a wedge between IOER and other money market rates. As a result, the IOER rate does not directly establish a firm floor under money market rates, but instead can be thought of as a magnet, with the strength of its pull determined by these balance sheet and competitive frictions.
The choice of equity allocation determines to a large extent the fund’s return and risk, and is therefore one of the most important decisions concerning fund management. Almost 40 per cent is invested in bonds, including government and corporate bonds, and a small portion is invested in real estate. 26 Government bonds in particular were long regarded as safe investments. This was also the thinking behind Statens Reservefond (Government Reserve Fund), established in 1904 to provide for investment in “first-class” foreign securities, primarily French, German and UK government bonds. High inflation in the wake of World War I reduced the real value of the fund by half, and the fund was discontinued in 1925. 27 Some would argue that investment in government bonds provides “risk-free returns”. In the context of current developments in the euro area, it might be more accurate to refer to this form of investment as “return-free risk”, to quote Yngve Slyngstad, the CEO of Norges Bank Investment Management. A third form of investment is the oil fund’s direct purchases of real estate, so far in London and Paris. We buy large stakes – usually between 25 and 75 per cent – in large real estate projects. 28 As a long-term investor, we hope to reap returns in this market as well. A large investor with a long-term perspective When we buy interests in a company both ethical and economic considerations come into play. There are companies in which we do not invest.

Sachs established an  30  For more on ownership strategies, see the NBIM website: http://www.nbim.no/en/Investments/ownershipstrategies/  31  For more about the UN guidelines, see “Global Compact”: http://www.unglobalcompact.org/. For more on the OECD guidelines, see: http://www.oecd.org/topic/0,3699,en_2649_37439_1_1_1_1_37439,00.html  32  South Africa received NOK 149.5 million in development assistance from Norway in 2010. See Norad website http://www.norad.no/en/tools-and-publications/norwegian-aid-statistics  BIS central bankers’ speeches  9  institute where advanced mathematical methods were applied to study the relationship between the position of the stars and the fates of human beings. 33 Collett was more down-toearth. He studied new methods of crop cultivation and was a keen supporter of the cultivation of potatoes here in South-Eastern Norway. 34 As a contributor to sustainable growth, we would have to say that Collett was closer to the mark than Sachs. Norway’s proximity to valuable natural resources has created substantial opportunities. New technology and new oil finds are still increasing the value of our oil wealth. Two North Sea fields where oil and gas were recently discovered, Galtvort (Hogwarts) and Gygrid (Hagrid), have been given names from the Norwegian version of Harry Potter. One of the books features the lucky potion Felix Felicis. This magical potion is difficult to make. The consequences can be catastrophic if the ingredients are mixed incorrectly. But if mixed correctly, the drinker will succeed in all that he undertakes. The potion also has some highly detrimental side-effects. If taken in excess, it may cause giddiness, recklessness and dangerous overconfidence.
And that same risk, for example taking deposits and issuing claims, is treated in the same way, regardless of the business model of the firm offering the service. There needs to be a level playing field in all directions. Developments in the way we store and manage our money. The supporting structures of law, institutions and physical technology are also about to change in the way we hold and manage the bank accounts in which most of our money resides. The bulk of money in the UK, as I have noted, takes the form of the £ in the tens of millions current accounts we hold in the banking system. At present, we access and manage this money through direct interactions with our bank. At the beginning of this year, the new EU Payment Services Directive (PSD2) came into force. This has been reinforced by the Open Banking requirements mandated by the Competition and Markets Authority for the major UK banks. PSD2 requires banks to allow a third party provider of financial services to have access to a customer’s online payment accounts if the customer requests it. These third party providers will have access to the account information and, again if the customer so chooses , they will be able to instruct transactions. These firms will have to be authorised in the UK by the FCA. 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  Open Banking requires the major banks to use a common data interface (the API).

11  Total sterling notes and coins in circulation, excluding backing assets for commercial banknote issue in Scotland and Northern Ireland, seasonally adjusted. 12 Statistics from Payments UK (now part of UK Finance) show that the value of cash payments were between £ and £ in each year from 2001-2010 but has fallen over recent years to £ in 2016. 13 From 18.2bn payments in 2014 to 15.4bn in 2016 (Payments UK). 14 ECB Use of Cash in Households in Euro Area Survey (2017) 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  The Bank of England has been very clear that it will issue cash to meet demand, as it has always done. Our investment in new cash technology, safer and longer lasting polymer notes is a demonstration of that commitment. At the same time however we will continue support innovation and competition in the machinery for making payments in the economy. But we also need to ensure that the private sector that increasingly provides much of the changing technology of our money as a means of payment, does so within an appropriate framework of regulation and authorisation. Along with our sister regulator, the Financial Conduct Authority we need to ensure that those who offer payment services, new and existing players alike, in any of the links of the transaction chain, are properly authorised and can manage the risks they bear.
Against the grain of established thinking, and now famously, Raghu Rajan argued at Jackson Hole in 2005 that the Federal Reserve’s commitment at the beginning of last decade to keep policy rates low for a prolonged period had fuelled financial risk taking.9 While this is now  6  See Borio and Disyatat (2011), “Global imbalance and the financial crisis: Link or no link”; and Cecchetti (2011), “Global imbalances: current accounts and financial flows”. 7  The gross foreign assets of each country’s residents, summed across all the countries in the world. 8  See Cabellero (2009), “Global Imbalances and Financial Fragility”, American Economic Review Papers and Proceedings, Vol 99, No. 2, May 2009, pp. 584–588. 9  See Rajan (2005) “The Greenspan Era: Lessons for the future”. Speech given at a Symposium Sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. August 27, 2005 He warned “persistent low interest rate can be a source of significant distortions for the financial sector, and thence for asset prices. Not only does this mean staying further away from deflation so that extremely low policy rates don't have to be used as a tool, it also implies exercising greater supervisory vigilance when those rates are in place to contain asset price bubbles”. 4  BIS central bankers’ speeches  posited as the “risk channel” of monetary policy,10 there has until recently been relatively little empirical work bearing on whether it actually exists. That may be changing.

The spot nominal interest rate on a ten-year zero-coupon government bond can be thought of as the average of the short-term interest rates expected to prevail over the ten year period, plus a term premium (which is often thought of as compensating investors for uncertainty around those short-term interest rates). Comparisons between yields on government bonds of different maturities can be used to identify a sequence of forward rates (ie the expected short rates at each point in time plus a forward term premium associated with that maturity). Using the information from the yields on inflation-linked government bonds, expectations of nominal short-term interest rates and forward premia can be broken down further into the expected future inflation rate (and an associated forward inflation term premium) and the expected future real interest rate (together with the associated forward real term premia), equation (1). ftnominal(n) = (Et[rt+n] + RPtReal) + (Et[πt+n] + RPtπ) ; where ftnominal(n) denotes the n-period ahead forward interest rate prevailing at time t; Et[rt+n] and Et[πt+n] the expectations for the real interest rate and the rate of inflation at that point and RPtReal and RPtπ the corresponding forward real and inflation term premia. In principle, then, there are two broad channels through which a decision by monetary policy makers to change their policy rate could affect longer-term interest rates, such as the 10-year government bond yield. First, the decision could change market participants’ expectation of either real interest rates or inflation. It is worth noting two standard bedrocks of monetary economics here.
It would destroy the financial infrastructure and, through it, the entire social and economic infrastructure. Rebuilding a nation after this massive destruction would be a very painful and tedious challenge for everyone. What is meant by inflation tax? Modern governments have been given monopoly power by their respective societies to produce and supply currency with a single objective: maintaining its value to facilitate its use for transactions, use as a store of value and a unit of account. Governments are required to attain this objective by responsibly regulating its supply. Governments, when performing this task and as a cost-effective measure, have resorted to the habit of issuing paper currency notes and debased metallic coins thereby gaining a unique advantage. That advantage is the ability to produce it at a cost which is simply a fraction of its face value. For instance, a currency note may have a face value of 1000 units of money, but a government does not spend 1000 units of money to produce that note. The total printing cost of that note may be just a fraction, say, 5 units of money. So, in this case, by issuing a note to a value of 1000, the government makes a profit of 995 units of money. Such profits accrued to the government are known as “seigniorage”. Now suppose that the government uses this 1000 note to pay salaries to a teacher. The teacher is required to sacrifice eight hours of her time a day to get that 1000 note as her salary.

But, borrowing from the central bank is just a single transaction and the Treasury could use it immediately for making payments. Second, because of the limitations of the tax bases in developing countries, there is resource paucity for governments to undertake much needed infrastructure projects. Hence, it has been argued that the governments in developing countries could initiate the development efforts by mobilizing resources through inflation. The initial inflation so created would get reversed once the new economic development increases the production of goods and services and raises the market supply. So, inflation would become a self-destroying process and, therefore, it is argued that there is no danger of using inflation for economic development. Third, taxes are mandatory payments and therefore, there is resistance on the part of tax payers to pay the taxes. Because of the pressure coming from the lobbying groups, political authorities too sometimes are unwilling to raise the tax rates to generate higher tax revenue. However, the resistance of the citizens to inflation tax is virtually nonexistent. This is because no one realizes that they are paying a tax to the government, when the prices move up. Any resistance by them is not against the  2  BIS Review 64/2007  inflation tax per se, but against the inflation. That again takes place after sometime when they have been very badly hit by inflation. Fourth, inflation is said to be bringing about some salutary effects to an economy from the point of view of its long term growth.