samchain/econo-pairs-v1 huggingface dataset:
There is a natural limit to what can be learnt from past time-series relationships. A standard portfolio model of OFC’s money demand, in which money holdings are jointly modelled with movements in asset prices and relative rates of return, would suggest that asset purchases on the scale seen might increase asset prices by the order of 20–30%. 4 At first blush, this impact may seem surprisingly large. But it is important to remember that the scale of the asset purchases made over the past year is truly substantial, amounting to some 14% of nominal GDP. But there are obviously huge uncertainty bands surrounding this type of estimate and I would not be surprised if it was revised, perhaps significantly, as we learn more about the impact of our current policy. These higher asset prices should help to stimulate increases in consumption and investment via wealth and cost-of-capital channels. But the transmission of the monetary stimulus through to higher nominal spending may occur only gradually. This suggests that a significant impact from our asset purchases is still to come through. An important issue when thinking about the likely channels of monetary transmission is the state of the banking system. In normal times, a key channel through which asset purchases might be expected to operate is by increasing banks’ stocks of liquid assets, which may encourage them to extend new loans. But we are not in normal times. Banks are pulling back on their lending as they seek to strengthen their balance sheets and reduce their leverage.

See the box on page 13 of the May 2009 Inflation Report for discussion of the reasons for excluding intermediate OFCs in measures of broad money. 7  This is in a similar spirit to Bernanke, Reinhart and Sack (2004). BIS Review 29/2010  5  Similarly, movements in OIS rates following policy announcements may provide a guide to the extent to which the announcements affected expectations about the future stance of monetary policy. OIS rates fell sharply following the initial announcements of QE, particularly at short horizons, suggesting these announcements caused market participants to revise down the expected future path of Bank Rate. However, perhaps not surprisingly, as QE has become better understood, OIS rates have responded less to more recent announcements. This is consistent with market participants increasingly viewing QE as part of the systematic component of monetary policy. To the extent that gilt yields and other asset prices have moved in response to this systematic component, these movements would not be captured by event studies and hence looking only at announcement effects may tend to understate the impact of QE. Gilts make up a relatively small proportion of total assets held by the private sector. As such, when assessing the overall impact of our asset purchases it is important to consider the increase in other asset prices. Since we started QE, equity prices have increased by more than 50%, and corporate bond yields have fallen by over 400 basis points.
For example, if interest rates decline (as in an economic downturn), leading to a reduction in the government interest burden, primary expenditure can be adjusted upwards and amplify the countercyclical effects of the monetary policy decision. However, if rates rise, as in an economic recovery, governments would have to make more of an effort on primary expenditure. How could we set the target for the expenditure rule? It could be country specific, if – and only if – (i) it seriously takes into account the initial level of debt and its sustainability but also the overall growth potential of the economy, and (ii) is explicitly agreed by a European authority. Another possibility worth exploring to improve our fiscal governance is to set up an adjustment account mechanism. A deviation from the expenditure rule over any year (i.e. a too rapid increase in public expenditure – if limited and occasional – or, on the contrary, a level of public expenditure below the predefined target) could be earmarked for compensation over the course of the subsequent years. The bottom line is that the long-term sustainability of public debt should be ensured by credible but flexible fiscal rules. Sound fiscal rules are also crucial to improve the quality of public expenditure: spending on the future – education, research, the ecological transition, investment – must take priority over spending on the day-to-day operation of public services, or on some of the social transfers.

I will then turn to the national level and illustrate these principles with reference to the French situation (II). I. Improving Europe’s future fiscal rules The EU and its member states have reacted vigorously in 2020. The ECB’s balance sheet is now double the size of the Fed’s as a percentage of GDP. And active fiscal policy was of the essence. In 2020, Covid-related discretionary measures were stronger in the United States than in the main euro area countries. However thanks to our social model and its higher automatic stabilizers, the overall 2020 fiscal stimulus in the euro area was almost as strong as in the United States:  Having said that, what can explain the larger loss of GDP in 2020 in the euro area compared to the United States? According to the Banque de France’s work, much [80%] of the difference in losses is due to something other than public support. In southern Europe, about 40% is explained through effective constraints on economic activity, and 40% through sectorial specialisation – the higher dependence of European countries on tourism, and the technological lead of the United States (development of teleworking before the crisis, weight of new information technology, share of e-commerce…). Three major crises in the past ten years – 2008-2009, 2011, 2020 – have nevertheless shown the need to complete the Economic Union in addition to the successful Monetary Union, starting with a permanent fiscal capacity.
BIS central bankers’ speeches  7  Figure 1 Impact of an increase in capital requirements by the Financial Policy Committee  State of State of business and credit cycle  View of Market on FPC’s assessment of system capital adequacy (1) Agrees and expected FPC action  (A) Boom  Debt spreads broadly unchanged  Debt spreads (B) Bust  broadly unchanged / fall slightly  (3) Behind FPC (but  (4) Shares FPC’s  (2) Ahead of  when FPC acts,  information but  FPC  worries it may not  disagrees that  have done enough)  system lacks capital  Debt spreads  Debt spreads  potentially rise  broadly unchanged  Debt spreads fall  Debt spreads Debt spreads fall  potentially rise,  Debt spreads  significantly  could exacerbate  broadly unchanged  downturn Note: Coloured shading indicates direction of change in overall financing costs, and hence likely impact on credit conditions. Blue (red) denotes a fall (rise) in overall financing costs and hence an easing (tightening) in credit conditions. Alternatively, the FPC might spot the risk to the system ahead of the market. Debt and, consequently, credit spreads might have been low for some time, with some sectors of the economy taking the opportunity to lever up. Having failed to spot the risks early, the FPC moved to require more capital in the system only once the credit cycle had turned.

The time may have come to evaluate the utility of the central credit registers that have long existed in some continental European and Asian countries. None of that, however, can alter banks’ core comparative advantage as monetary institutions: the provision of liquidity through overdrafts, lines of credit and other working capital facilities. That role might be aided by a revival of a market in trade credit.15 Banks will always be levered because their core monetary service revolves around transaction-account deposits, which are debt liabilities. And, on the other side of the balance sheet, they will always have somewhat risky asset portfolios because being a monetary institution makes them an efficient supplier of short-term finance to households, firms and the rest of the financial system. But they can do all that only if they are healthy and prosperous: only sound banks can make a credible promise to repay or lend money on demand. The fragility in banks’ balance sheets is why they are regulated. Today, I have sketched the outline of a Capital Accord for the future. An Accord that would go beyond reducing the probability of failure, by also addressing the need to cope with distressed banks, ensuring that resolution can be orderly. Taking the tax-deductibility of debt interest as a given, the banking authorities can make it beneficial to society as a whole, not just to private interests, by requiring that a minimum level of term bond finance be part of the capital structure.
The recovery process The economic recovery was faster than expected. In the second half of 2009, activity grew at an annualized rate of around 6%. Key factors in this trend included the increase in private consumption and the recovery of investment. Initially, the recovery of private demand was due mostly to the rebuilding of inventories, it continued with the dynamism of consumption and gross fixed capital formation. This contrasts with the situation in advanced economies where after inventories recovered, private demand has been sluggish due to the very weak financial position of households. Several indicators available until end February of 2010 were pointing to a consolidation of the consumption and activity trend. But then, on February 27th, the fifth strongest earthquake ever measured hit our country. The huge initial contraction of aggregate output was largely concentrated in manufacturing. The immediate disruptions of the productive processes due to 27-F dissipated quickly and by the second quarter of the year output exceeded the levels prior to the earthquake. The economy remained on a growth trend and inflation has been below expectations, owing to lower imported inflation and some specific factors. The baseline scenario of our December Monetary Policy Report assumes that the Chilean economy grew 5.2% in 2010 and that GDP growth will stand between 5.5 and 6.5% during 2011. Median private expectation set the growth rate for 2012 at 5.5%. Economic growth projections assume that output gaps are near exhaustion and will stay thus over the whole policy horizon.

Our floating regime admits interventions in exceptional situations, like the one announced at the beginning of the month. Nonetheless, it is important to consider that beyond the evolution of the dollar in international markets, there are some more long-lasting elements underlying the real appreciation of the peso, such as improved terms of trade, the accumulated increase in the ratio of public expenditure to GDP and the reduction in our net debtor position relative to the rest of the world. The effects of these factors on the real exchange rate and the competitiveness of some sectors goes beyond the horizon of the effects of this intervention. Those sectors need to improve their productivity and reallocate their exports to growing emerging markets in order to remain competitive. In any case, additional reserves available will allow to better deal with the contingency of a significant deterioration of the external environment. Foreign exchange markets are under stress and currencies are adjusting asymmetrically. There is also the risk that GDP growth decoupling between advanced and emerging economies will persist longer than expected, thus intensifying the pressure on the exchange rate. Accordingly, the effects of this measure, although temporary, should open room for smoother real adjustments in the domestic economy. Final thoughts and challenges The ability of macroeconomic policies in developing economies to react swiftly was essential to reduce the impact of the global crisis.
Hopefully, I have managed to shed light on some of those principles today. Thank you for your attention. 4  BIS Review 45/2007  BIS Review 45/2007  5  6  BIS Review 45/2007  BIS Review 45/2007  7  8  BIS Review 45/2007  BIS Review 45/2007  9  10  BIS Review 45/2007  BIS Review 45/2007  11

And in spite of the uncertainty surrounding the outcomes, the decision cannot be put off, since a wait-and-see approach is likely more costly, and certainly riskier. What is the price of not tackling inflation decisively? That we know. The high tax on the disadvantaged, on those on fixed incomes, incentivising rent seekers, the waste of dog chase tail wage-price spirals. At the same time we hear that a recession is not just around the corner but on our door step. We hear that certain indicators are also giving out the message that certain prices have peaked and some are even falling. So why all this unrelenting rush to kill off inflation when the recession has started to do the work itself. Let us be careful. My understanding is that the financial markets and economic forecasters do not believe that the recession as seen today will be so deep that it will do all our work. For inflationary expectations not to be anchored at levels where we do not want them, we need a more resolutive anti-inflationary policy measures. 1/4  BIS - Central bankers' speeches  The reason for taking this stance issupported by the currentsituation that fiscal policy this time around will not be in synch with the restrictive policy taken by Central banks. Driven by social pressures to cushion families hit by fuel and food shortages accompanied by astronomical price increases, governments are responding with subsidies of all sorts but mostly aimed towards fuel and food prices.
Interest rates abroad are an important condition for Swedish monetary policy. As I have pointed out on previous occasions, there is a very high correlation between Sweden and the rest of the world regarding inflation, GDP and interest rates. 3 When the euro area conducts a highly expansionary monetary policy, this affects us. I am thinking not just of the level of the policy rate but also of the ECB’s comprehensive asset purchases, which are also intended to push down the interest rate level in the euro area (see Figures 2 and 3). Everything else being equal, lower interest rates abroad lead to a stronger krona and lower inflation in Sweden via lower import prices. 3  2  See my speech to the Swedish Economics Association, 2015. BIS central bankers’ speeches  Figure 2 Policy rates in Sweden and the euro area Per cent  Sources: ECB and the Riksbank. Figure 3 Central banks’ balance sheet totals Per cent of GDP  Sources: ECB, Eurostat, Statistics Sweden and the Riksbank. Several other small, open economies, such as Switzerland, the Czech Republic and Denmark, have also been affected by the ECB’s expansionary monetary policy, even though their conditions are slightly different from those in Sweden, not least as regards their monetary policy regimes. However, the problem is fundamentally the same, namely that the expansionary monetary policy in the euro area is creating pressure on these countries’ own currencies to appreciate.

An easing of monetary policy in many parts of the world as well as in Sweden has been an important factor behind the better tendencies in recent months and the more positive forecasts. Even though the statistics show a stronger economic trend, inflation has been in line with the Riksbank’s forecasts. For this reason the repo rate has been kept unchanged since March. 1  BIS Review 108/1999  In August the 12-month rate of CPI inflation was 0.6% and inflation’s underlying rate, measured by UNDIX, was 1.5%. It is changes in indirect taxes and subsidies, together with house mortgage interest expenditure, that are continuing to result in an underlying rate of inflation that is higher than CPI inflation. Economic prospects from 1999 to 2001 We are now moving into a period of strong growth, externally as well as in Sweden. As regards the international picture, the Riksbank judges that annual growth in the OECD area up to the end of 2001 will amount to not quite 2.5%. It looks as though effects of the Asian crisis are now dying away and that emerging market growth will become stronger in the next two years, above all in the crisis-hit countries in Southeast Asia but to some extent also in Latin America and Eastern Europe. In Japan, too, the earlier risk of negative growth has turned into cautious optimism about an upturn. Prospects for the euro area have likewise improved, with a recovery in manufacturing and stronger consumer confidence.
When the SRR was introduced in June 2016, capital flows into the bond market had more or less clogged up the interest rate channel of monetary policy transmission. As a result, the effects surfaced primarily in a higher exchange rate. Because capital controls on outflows had not yet been lifted at that time, the risk existed of an overshooting of the exchange rate, with adverse repercussions for Iceland’s tradable sector. In addition, it was considered unfortunate, and actually unnatural, that large carry trade positions should accumulate before those that had entered the economy before the crash had been released. The exchange rate of the króna was also rising, and rose even further thereafter, because of strong tourism-generated inflows through the current account. This, of course, had a crowding-out effect on other segments of the tradable sector. If this had been compounded by a steep rise in carry trade-related inflows, Iceland would have found itself in a more dangerous position, with increased risk of an abrupt correction later on and the associated impact on economic and financial stability. Because of the recent decline in the exchange rate, this risk has receded, and it could even be argued that the risk is currently in the other direction; i.e., that excessive pessimism and self-fulfilled expectations of a further depreciation in the króna could lead to undershooting.

This also means that the equilibrium exchange rate of the króna has probably fallen in the recent past, which in turn may partially explain the recent depreciation of the króna. The deterioration in external conditions is not good news, of course, but we must place it in the context of the substantial improvement that has taken place in recent years. On the whole, however, this turning point is positive in a number of ways. The growth rate of the past few years was unsustainable, and it tested the capacity limits of the domestic economy. According to the Central Bank forecast published yesterday, the landing will be a soft one. GDP growth will measure 2.6% over the next three years, close to the average level that will allow the economy to grow without importing labour. The positive output gap will narrow gradually and close by the end of the forecast horizon, which is in 2021. There will be virtually full employment for the entire period, and purchasing power will continue to rise. Inflation will rise above the target in 2019 but then remain close to the target for the rest of the forecast horizon, partly because the forecast assumes that interest rates will rise when inflation does. Some observers might say that this is too good to be true. It could turn out that way, of course, but that would be because known or unknown risks not included in the forecast had materialised. There are so many things that could happen in this regard.
Øystein Olsen: Monetary policy and financial stability considerations Speech by Mr Øystein Olsen, Governor of Norges Bank (Central Bank of Norway), at the European Banking & Financial Forum, Prague, 27 March 2012. *  *  *  The text below may differ from the actual presentation. This speech does not contain assessments of the current economic situation or interest rate setting. Introduction The past few years have clearly shown the costs of financial instability. The near collapse of the financial system in autumn 2008 led to the most severe economic downturn of our time. There was a dramatic decline in international trade, and total world output fell from one year to the next for the first time in generations. When financial markets failed, the authorities had to intervene. Bailout packages for banks shifted debt from private to public hands. Governments increased spending in order to curb the fall in activity. Many countries are now trying to rein in large deficits and rising government debt under difficult conditions. Pension rules and tax systems are under review. The costs of such structural reforms would have been lower in good times. A financial crisis has to be met with appropriate measures, but the main objective in our work on financial stability must be to reduce the risk of crises emerging. History tells us that a financial crisis typically arises when debt has accumulated over a long period. An important task is therefore to contain the buildup of imbalances and secure a robust financial system.

This amplified the cyclical upturn in our part of the world. Towards the end of the decade, during the financial crisis, policy interest rates were reduced sharply and to record-low levels. That was a natural and necessary response. But a persistently low interest rate poses challenges in an economy where there is a strong appetite for borrowing and property prices are rising, as this may increase the risk of imbalances further ahead. BIS central bankers’ speeches  1  These experiences have provided new insights into how the interest rate functions under an inflation targeting regime. Norges Bank’s analyses and communication have evolved. Economic agents have become familiar with our response pattern. When setting the key policy rate, we do not exclusively assign weight to bringing inflation back to target, but we also take into account the impact of the interest rate on output and employment. Inflation targeting has become more flexible. In our most recent Monetary Policy Report, published in March 2012, we further clarified the Banks’s response pattern. By way of three criteria, we highlight what we take into account when we set interest rates. The first criterion states that the interest rate should be set with a view to stabilising inflation at target or to bring it back to target if a deviation has occurred. The second criterion states that the interest rate path set by the Bank for the period ahead should provide a reasonable balance between the path for inflation and the path for overall capacity utilisation in the economy, i.e.