samchain/econo-pairs-v1 huggingface dataset:
BIS Review 65/1008  9  There are signs of a cooling housing market throughout the country. House price inflation peaked about a year ago. For Norway as a whole, house prices have remained approximately unchanged over the past twelve months. There are nevertheless regional differences in house prices. House prices are rising fastest in Rogaland, and falling fastest in Hordaland and the inland regions. Housing investment gradually slackened through 2007, reflecting higher interest rates, rising inventories of unsold homes and increased construction costs. Several large residential construction projects have now been shelved. We also expect commercial property starts to show a gradual decline. 10  BIS Review 65/2008  Developments in capacity utilisation abroad have an impact on capacity utilisation at home. After several years of strong growth in the world economy, growth is slowing in a number of countries. Growth in the US seems to have come to a halt, and there are fears of a downturn. Growth is also slackening in many western European countries, but emerging economies such as China and India are still growing at a brisk pace. Inflation is picking up in many countries due to rising food and energy prices. Central bank key rates have been cut in the US and the UK to address deteriorating growth prospects. In the euro area the interest rate has been kept unchanged, while the Swedish central bank has increased its interest rate. Developments in the world economy will affect the Norwegian economy.

I think that pragmatism should prevail as to the form of the private sector involvement in crises resolution. But there is a need for general principles to highlight the roles and responsibilities of the public and private sectors, such as those that have been defined in the framework adopted by the G7 at the Köln Summit in June 1999. Among these principles, I would particularly stress: –  the focus on the medium term sustainability of a country’s financing position;  –  the objective to achieve comparability of treatment between and within a country’s bilateral official and private creditors. 1.5  Choice of the right exchange rate regime  The sustainability of any exchange rate regime depends crucially on its consistency with a country’s domestic macroeconomic and structural policy framework. This being said, the choice of an exchange rate regime should rest on the following principles: –  So-called “corner solutions” are not necessarily the only available options. Free floating rates may help to accommodate volatile capital flows and asymmetric shocks; however, they might not prevent misalignments leading to balance of payments desequilibrium, they might prove disruptive for the real sector of small open economies, which often lack the size for developing the necessary market infrastructure to cope with exchange rate instability. Currency boards can be warranted only under very specific circumstances.
Third parties like the media and research analysts also have a role to play. They can shine the spotlight on exemplary companies as well as highlight questionable practices. Let me cite two commendable initiatives. •  The National University of Singapore and the Business Times have developed and publish regularly a Governance and Transparency Index, which assesses and ranks companies based on their corporate governance practices and the transparency of their financial results. 2  BIS central bankers’ speeches  •  The Securities Investors Association (Singapore) will introduce a new corporate governance page on its website to provide investors with more information on the corporate governance practices of the top 100 companies selected through the use of a corporate governance scorecard. 15. It is also encouraging to see an increase in local media coverage of corporate governance issues. But there is one area where I believe the media can do better. Media reports following a company’s AGM tend to focus excessively on the remuneration of the CEO and the directors, with precious little commentary on the company’s performance, business strategies, or risk management. I am not suggesting that remuneration issues are not appropriate areas for scrutiny – they very much are – but we need a more holistic assessment of our companies, and the media plays an important educational role in this regard, especially for retail investors. Building board competencies 16. A second area where we need to go beyond the rules is in raising the competency levels of our Boards.

The task of explaining monetary policy and the risks to Swedish inflation prospects one to two years ahead is an important aspect of our operations and in some ways is a precondition for our ability to attain our objective of maintaining price stability in the Swedish economy. Similarly, we publish regular reports that comment on stability issues in the Swedish financial system so as to ensure a safe and efficient payment system. But sometimes the Riksbank also needs to look beyond the current monetary policy situation or conditions in the country’s banks and comment on issues of a longer-term nature. Here, the Bank may give its views on the labour market, on competition in trade and industry or on the long-term conditions for growth in the Swedish economy. In light of this, the issues relating to the Lisbon agenda are something the Riksbank has been following with great interest. Potential growth plays a key role for monetary policy Long-term potential growth in particular also plays an important role in the Riksbank’s monetary policy assessment. Economic growth essentially depends on two factors - how much we work and how productive we are. Thus, in somewhat simplified terms, we could say that it is efficiency gains and growth in the working population that enables us to increase consumption. This is what we usually refer to as the potential growth rate, that is, the rate at which the economy can generate new economic resources without giving rise to shortages or surpluses.
It is not possible collectively to commit to enforce a monetary policy contract with an institution such as a central bank. And, even if we could, we would not want to because that would prevent us from exploiting new knowledge about the world. In essence, I want to argue that the relevant theoretical framework could be described as “public goods meet incomplete contracts”. Institutional design is at the heart of collective decisions in a world of incomplete contracts, and, interestingly, discussion of monetary issues in recent years has focussed on institutional arrangements. I shall illustrate the importance of institutional design for the operation of monetary policy by reference to three case studies: the collapse of exchange rate regimes in Brazil and the United Kingdom; currency arrangements in Iraq and their reform after the war last year; and the relationship between central banks and governments when the zero constraint on nominal interest rates is binding. 1  I am deeply grateful to James Proudman, Jan Vlieghe and Tony Yates for their research collaboration and for many of the ideas in this lecture. They are truly co-authors. I am also grateful to Peter Andrews, Andrew Bailey, John Campbell, Forest Capie, Philip Evans, Niall Ferguson, Charles Goodhart, Simon Gray, Oliver Hart, John Moore, Tom Sargent, Lars Svensson, Greg Thwaites and Geoffrey Wood for their helpful comments. Kath Begley and Ed Bolingbrooke provided valuable research assistance. All errors and omissions are my responsibility.

When the central bank offers to buy illiquid long-term bonds, it increases the average liquidity of the private sector’s portfolio, replacing less liquid with more liquid securities. The private sector will therefore be more willing to hold other illiquid instruments, such as private sector bonds and equities. As a result, liquidity premia fall across a broad category of securities, raising their market value. That will stimulate spending by firms and consumers.17 Such a policy is preferable to conventional open market purchases of short-term bills or bonds because when interest rates are zero such bills become perfect substitutes for cash. Hence purchases of short bonds have no effect on spending or other real variables. It is a short step to show that this argument implies an equivalence proposition between unconventional quantitative operations, on the one hand, and a combination of neutral conventional operations and government debt management, on the other. The purchase of a long-term bond by the central bank is equivalent to a combination of two other operations: a purchase of a short-term bill, followed by an operation that swaps the short-term bill for the long term bond. In either case, the central bank balance sheet ends up with an additional liability in cash, and an additional asset in longterm bonds. The first of these two operations, the purchase of a short-term bill, is neutral in its effect as it replaces one private sector asset, a short-term bill, with another, cash, that is a perfect substitute for it.
The answer is that while the rise in real house prices over that period would have been less than half as large, the impact on overall real credit growth would have been pretty modest, reducing it by only a tenth – hardly enough to have a major bearing on the magnitude of the subsequent bust. Moreover, output would have been some 3 per cent lower. Monetary policy on its own therefore does not seem especially well suited to preventing credit/asset-price booms. So the crisis exposed not only the inadequacy of our understanding of the true nature of the risks that had built up in the financial sector, but also the need for suitable instruments to deal with them. One of the key reforms in the United Kingdom following the crisis has been to establish a body – the Financial Policy Committee (FPC) – with the responsibility for overseeing the stability of the financial system, together with specific powers to achieve that. The FPC will exist on a statutory basis once the Financial Services Act has passed into law, but has been operating on an interim basis since June 2011. The FPC has two objectives. First and foremost, it is charged with identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. But that is accompanied by a secondary goal: subject to protecting resilience, it should support the economic policy of the government, including its objectives for growth and employment.

In today's environment, cultivating a lifelong learning experience is essential to personal and economic success. Lifelong learning involves more than just formal education and training. It encompasses learning throughout the life cycle, at different stages of life and in different learning environments. As individuals, attention to lifelong learning is essential to remain relevant in a highly competitive environment and to enhance our ability to function effectively and in a meaningful way as members of our community. With new knowledge comes innovation, agility and increased productivity that contributes to the overall performance and economic growth process. While it also enables us to adapt to the constantly changing environment, it also increases our capacity to cope with natural emergencies. The challenge then is to embrace the opportunities as they present themselves and to continuously develop new skills and competencies that will be needed to meet current and future demands. The opportunities for learning will be boundless. Technology has also significantly broadened the reach and means for learning, as well as increased learning efficiencies. As you step into this new and exciting world, these possibilities should be fully optimized. In concluding, allow me to offer my congratulations once again to the graduates of the class of 2006. You represent the promise of our nation's future. Indeed, nation building no longer belongs exclusively to the realm of the Government. As professionals, your advancements should not just be confined to those of immediate interest or relevance to you.
Not only do we have an 4/6  BIS central bankers' speeches  economy that is growing at an above-trend pace—at a time when the labor market is already quite tight—but the economy will be getting an extra boost in 2018 and 2019 from the recently enacted tax legislation. Moreover, even though the FOMC has raised its target range for the federal funds rate by 125 basis points over the past two years, financial conditions today are easier than when we started to remove monetary policy accommodation. This suggests that the Federal Reserve may have to press harder on the brakes at some point over the next few years. If that happens, the risk of a hard landing will increase. Historically, the Federal Reserve has found it difficult to achieve a soft landing—especially when the unemployment rate has fallen below the rate consistent with stable inflation. In those circumstances, the Federal Reserve has been unable to both push up the unemployment rate slightly to a level that is consistent with stable inflation and avoid recession.8 Now, I don’t want to imply that a recession is inevitable once the FOMC finds it necessary to nudge up the unemployment rate to a sustainable level. The starting point in terms of the inflation rate is also important because it will influence how far the FOMC is likely to go in terms of making monetary policy tight. Nevertheless, I think it is fair to say that the track record on this score is not encouraging.

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.
When the crisis materialized and firms began to experience material distress or even fail, US law did not have a framework for achieving an orderly resolution of a systemically important institution at the corporate level. It had tools that have proved highly effective in managing corporate restructuring and depository institution receiverships, but none tailored for a major financial group. Instead, when large financial groups began to fail, policymakers relied on ad hoc interventions. Some of the immediate interventions involved use of the Federal Reserve’s “lender of last resort” functions. It was at this point that “Section 13(3)” entered the lexicon of modern central banking. For those few who are unaware, Section 13(3) was added to the Federal Reserve Act during the Great Depression. It gave the Board of Governors broad authority to permit a Reserve Bank to lend in exigent and unusual circumstances provided that the Reserve Bank was secured to its satisfaction. Prior to the crisis, Section 13(3) loans had last been made during the Depression, to such enterprises as a typewriter manufacturer and a vegetable grower. 4 Fed policy makers and their advisors pulled Section 13(3) back off the shelf, perhaps brushing some metaphorical dust off its cover. In 2008, loans made pursuant to Section 13(3) facilitated JPMorgan Chase’s purchase of Bear Stearns. Loans under 13(3) also prevented the potentially catastrophic failure of American International Group (AIG). Innovations under 13(3) also underpinned many of the Fed’s broad-based facilities to provide market liquidity.

Last month, the Dow Jones Industrial Average reached an all-time high. Recent data suggest that families’ incomes have increased between 2013 and 2016, although they also suggest that the wealth gap is widening.3 People, too, have changed. Even at the New York Fed, now, over 50 percent of staff were not with us at the time of the crisis. I suspect that the same is true at banks and law firms, where many professionals have practiced for less than a decade. These junior bankers and lawyers have not even experienced a turn of the business cycle let alone have a memory of the financial crisis. Now, I recognize that the crisis and its aftermath is well trod ground. Indeed, my boss Bill Dudley delivered a speech on this very topic last week. That said, I think it is worth traveling down this well-worn path again. In doing so, I am mindful of a few aphorisms. First, those who fail to remember history are doomed to repeat it. Second, generals (and economists and even lawyers) tend to fight the last war. The third, which I will steal from a mutual fund prospectus, is that past performance is no guarantee of future results. All of this is to say that while it is critical to remember and draw lessons from what happened in that period of 2007–2009, and the response to it, it is also equally critical to remember that the next shock to the system is likely to look quite different in material ways.
Indeed, in the face of acute uncertainty, ranking can be the optimal inference strategy.9 This explains the ubiquity of league tables across the financial sector when judging everything from investment performance to financial deal-making. But ranking has an unfortunate side-effect. By hard-wiring relative standing, it builds in arms-race behaviour among financial participants. A second structural feature of finance, which generates similar incentive effects, is maturity transformation. Banking involves borrowing short in a capital-certain instrument to lend long through a capital-uncertain instrument. When doubts creep in about this balance sheet structure, investors run on the bank knowing it is first-come, first-served. They are engaging  5  Hardin (1968). 6  Veblen (1899). 7  For example, Layard (2005). 8  For example, Dusenberry (1949). 9  Lazear and Rosen (1981). 2  BIS central bankers’ speeches  in a liquidity arms race, penalising those behind them in the queue. These actions are individually rational but collectively self-defeating if the bank goes bust.10 A third structural feature is that some markets for financial services are winner-takes-all tournaments, like elephant seals seeking mates on the beach. Whether it is making markets in financial instruments, lead underwriting a debt or equity issue or advising on a merger or takeover, there is typically only one winner. They take all. Tournaments like these lead to arms-race behaviour as firms seek to leapfrog one another in their competitive quest for top-dog status. In finance, this can lead to the winner being “cursed” and to everyone else over-competing by under-pricing risk.

In our part, we believe that a lower policy rate and a wider interest rate corridor combined with higher required reserve ratios may serve as an effective policy mix in dealing with rapidly increasing macro imbalances driven by short term capital inflows. Thank you. BIS central bankers’ speeches  3
This line of reasoning applies when demand grows rapidly, as now, and when capacity utilisation rises. In my opinion, the interest rate effects would be different if the growth in demand slowed down, the labour market weakened and capacity utilisation ceased rising. Then there would be less upward pressure on house prices and I believe that an interest rate cut would be less risky in these terms. International developments could also be so weak that insufficient export market demand would curb the recovery. The weak developments in our most important trading partner countries, the euro area, are particularly worrying. Like Sweden and the United States, Germany, France and Italy are affected by globalisation, but in these countries the labour market seems to be finding it particularly difficult to cope with change. Germany is at the same time undergoing extensive structural reforms, such as the reduction of compensation levels for unemployment benefits and other transfers, and also longer working hours without full compensation. In the long term, these measures are aimed at increasing the labour supply and competitiveness of the German economy. However, in the short term they lead to uncertainty for many individuals and thereby curb consumer confidence and demand. At the same time, fiscal policy is tied by weak government finances due to a lack of fiscal consolidation during the good times at the end of the 1990s which has made the obligations under the Stability Pact more or less binding, while monetary policy is common to the entire euro area.

Villy Bergström: Is the present low inflation rate a problem? Speech by Mr Villy Bergström, Deputy Governor of Sveriges Riksbank, at the annual meeting of the Swedish Association of Independent Savings Bank, Vadstena, 30 May 2005. *  *  *  As one of my colleagues said recently, it appears as though we are now undergoing the gloomiest economic boom of our time. It is in many ways an unusual economic situation; growth is healthy, productivity is very strong, export demand is stable, wage trends look good, households are borrowing away and house prices are developing well. However, employment is weak and inflation is low. The annual CPI inflation rate was 0.3 per cent in April and the UND1X rate was 0.4 per cent. This is below the interval of 2 per cent +/- one percentage point we have as our inflation target. Of course, this is a failure, albeit one that is largely beyond our control. Our efforts, analyses and assessments are all aimed at keeping inflation as close to the target level as possible and within the interval we have specified ourselves. The question is what conclusions we should rightfully draw from this miscalculation, particularly with regard to employment. Monetary policy’s effect one to two years ahead – a challenge for communication To begin with the low inflation rate makes greater demands on the Riksbank’s ability to explain its policy.