samchain/econo-pairs-v1 huggingface dataset:
Otherwise, the macro models will have little or no value for the policymakers who must make hard decisions based on the policy implications of the models. Models today have in fact evolved to be quite different from those in the 1970s. Then, macro models placed much emphasis on demand-driven outcomes for the economy. That was because governments believed in the power of discretionary monetary and fiscal policies to promote high growth and low inflation. However, the repeated failure of such macro models to identify critical turning points in the 1970s and 1980s caused many economists to question the old assumptions behind the models. It then became clear that supply-side factors and the role of expectations also needed to be worked in. Thus, today many macro models build in these factors. One example is how most models now work in the impact of the economy’s potential output on inflation outcomes. In the US, modellers are faced with growing evidence of an emergent “New Economy”. The hypothesis is that high rates of growth can be sustained without triggering off inflationary pressures, even at the point of full employment. I understand that staff from the Federal Reserve constantly update their estimates of key model parameters, such as the NAIRU2 as well as trend productivity to reflect the features of this New Economy. These updated estimates have been used to help shape the Fed’s forecasts of growth and inflation, thereby ensuring that the policymaking process is an informed one.

The second quality I have in mind refers specifically to the model’s role in forecasting and policy analysis. A model must have a good track record, in order to serve as a reliable guide to the policymaker. I am not asking for spot-on point forecasts or estimates but, at a minimum, a macro model must be able to provide policymakers with a good feel for the directional effects of various policy options. Thirdly, the workings of the model must be transparent. Ideally, the structure of the model should correspond to a flowchart of the linkages within the economy. Fed Governor Laurence Meyer has said in a recent speech3 that model-based forecasting needs to “start with a paradigm and end with a story”. 2 3  Non-Accelerating Inflation Rate of Unemployment. To the Stern Graduate School of Business, New York University: “Start with a Paradigm, End with a Story: The Value of Model-Based Forecasting and Policy Analysis”. BIS Review 9/2000  2  Ultimately, when policymakers want to introduce policy changes, they want to know through what channels the effect of this policy will flow and how agents will react to this policy. In other words, policymakers want to know the story going on behind each policy reaction and not just be buried under masses of model output. Fourth, macro modelling should adopt a pluralistic approach. Policymakers are like consumers while macro modellers are the producers. As the well-known econometrician Clive Granger4 said, “it is worth remembering that consumers usually prefer having a choice.
In terms of market destination, in the past, our export performance relied heavily on the market conditions of the G3 countries, with our export growth usually deteriorating when these economies were in recessions. However, the situation has changed in recent years with intra-regional trade quickly gaining a more significant role. With this, our export has enjoyed greater market access in China and other East Asian countries. The intensification of intra-regional trade, which is likely to continue, has made Thailand’s export cycles less dependent on the G3 economies, and Thailand’s strong export performance over the past year amid G3 economic slowdown is just a reflection of our more well-balanced export market base. On this note, I would like to emphasize that the EU is indeed an important export market for Thailand, and export to the United Kingdom in particular comprises around 3-4 percent of Thailand’s total export value. The good news is that even with keener competition in the world market, Thailand’s export growth to the EU remains quite high at around 18 percent in the first half of this year, thanks in part to the contribution of chambers of commerce like yours. Regarding export of services, we are all aware that the Thai tourism industry was hit hard by the outbreak of SARS in the second quarter. The number of foreign tourists in May dropped by as much as 50 percent year-on-year, a magnitude that dwarfed the impact of 911 by comparison.

On this, the contribution from the organization and people like yourself has played no small part, and I would like very much to use this opportunity to acknowledge this. Going forward, the challenge is to translate the current momentum into a sustainable growth well into the medium term. This, as I noted earlier, would require a continued fostering of the export and consumption expansion so that capacity utilization could increase to the point that private sector capital investment would gain an even firmer footing. During this period, monetary policy must remain supportive of the growth process. At the same time, we will continue to keep watchful eyes on certain areas of the economy that may expand too fast and impose risks to economic and financial stability. Should some of these excesses occur, however, the Bank of Thailand will make sure that appropriate measures will be employed to prevent and mitigate such risks. Ladies and gentlemen, Thank you for your attention. I think I would just stop now to give time for questions. I’ll do my best to answer any questions you may have. Thank you. BIS Review 46/2003  5
The opposite situation is more difficult; when restraint is required in situations where there is a risk that prices and wage formation could get out of control. It would then be necessary to find institutional solutions to help the government and parliament to make the necessary long-term decisions and to do so even in situations where they may be politically difficult and even risky. Here I think it is possible to draw on some experiences of the Riksbank's actions in recent years. Clear targets, transparent analyses and discussions, combined with regular assessments, can put pressure on the political system to take action in time. If you remember, there was doubt at the beginning that the Riksbank would be able to achieve its inflation target. Some people say it is an impossible task. That Swedish politicians will never be able to manage fiscal policy in a responsible manner. I find this rather difficult to understand, although we have negative experiences from the 1970s and 1980s. It is enough to look at two of our three closest neighbours -  2  BIS Review 39/2003  Denmark and Finland. Both have experienced equally severe fiscal policy problems as Sweden, but they now have, as far as one can see, fully-functional fiscal policy regimes adapted to fixed exchange rates. A different, improved budget policy system was also established in Sweden following the crisis in the early 1990s, although this was aimed at long-term sustainability rather than stabilisation, which is only natural with a floating exchange rate.

If, on the other hand, we understand political union as the establishment of an entity that resembles the traditional nation state, the European Union may still have some way to go, if indeed this is the direction that Europeans want to take. Today’s Union is not a European Federation, for example, or a United States of Europe, with a constitution and a single executive. The euro marks the achievement of full integration in the monetary field. In purely functional terms, it is therefore an end point, rather than an intermediate step. However, with the euro, we now form a “Schicksalsgemeinschaft”, a community with a shared future. Our economies are linked, and so our policy decisions have become a matter of concern for all. We have a legitimate interest in developments and political actions in other euro area countries, since we are affected by them - for better or for worse. If I may use a “domestic” metaphor, the marriage in which the euro has joined our countries is about more than just living under the same roof, it is about sharing a common vision and about managing life together. Concluding remarks In the context of the current attempts to help the European Union work smoothly and on a sustainable basis following its future enlargement, I would like to conclude by mentioning the draft Treaty establishing a Constitution for Europe. The process of European integration has delivered half a century of stability, peace and prosperity.
A stable financial system features solid cushions that reduce the risk of problems spreading from one institution or market to other institutions or markets, or across borders. This risk constitutes a systemic risk, i.e. the risk of failure of the financial system. 1  BIS Review 124/1999  Disturbances that may develop into a systemic risk can be transmitted through financial institutions and financial markets. Stable institutions are solid institutions in which there is general confidence, whereas stable markets are markets where there are no “excessive” price variations. The banks are in a special position. They transform short-term deposits into long-term loans. They are responsible for payment settlements, and bank deposits serve as a means of payment. The volume of amounts outstanding in the interbank market is sizeable. As a result, problems in one bank may rapidly spread to other banks. The financial strength of banks is thus important for financial stability. The more capital a bank has the larger the losses it can absorb. The risk of contagion is thus reduced. A bank’s capital adequacy ratio is not the only variable that must be taken into account. A bank’s earnings provide an indication of the bank’s future financial position. Another important factor is the size of a bank’s loss provisions. Financial unrest spreads through payment and settlement systems. These systems can also be at the origin of risk. This occurs when banks credit customers before they have received settlement from the payer bank.

Mark Twain is supposed to have once said: “I’m all for progress; it’s change I don’t like.” However, change lies in the nature of market liberalism, which neither can nor should be stationary. The structural changes that come in the wake of globalisation mean that less efficient production is replaced by more efficient production, and that sectors that do not hold up in competition are replaced by sectors where the country has comparative advantages, that is to say, is relatively better than its competitors. Structural changes thus consist of two parts: closing down (or moving out) and new establishment of businesses. The Austrian economist Joseph Schumpeter called this creative destruction; old jobs and technologies disappear and new, more productive jobs arise as technology develops and production becomes more specialised. The major challenge in future, in both Sweden and other industrialised nations, will therefore be to create dynamic conditions in which new jobs can arise as the old ones disappear due to rationalisation or are moved abroad. Studies regarding some industrial nations indicate that many jobs lost during the most recent economic slowdown have not yet been replaced by new jobs in the same branch when economic activity picked up again; instead productivity has been higher. However, employment has continued to increase in other sectors, which appears to increase the number of jobs regardless of economic activity. The fact that employees have to change sector leads to greater friction unemployment arising.
I believe that it will lead to a more optimal implementation of the new framework. Furthermore, possible concerns about competitive equality can be alleviated thanks to the existence of temporary capital floors. The third significant result of last week’s meeting is that the Committee agreed on the way forward for the implementation and evolution of Basel II. The framework and timetable have been agreed. Yet we have much hard work still ahead of us, as the implementation of the rules will be a challenging task and also because we have recognised that the Basel II approach is intended to be evolutionary. At our meeting, the members of the Committee discussed several implementation issues that we will “iron out” in consultation with other supervisors and the industry. This includes finding ways for home and host jurisdictions to coordinate and cooperate when applying the new rules to banking organisations that are active in multiple jurisdictions. More than ever before, supervisors will need to work together to reduce the regulatory burden on banks and to conserve supervisory resources. We also face some difficult technical matters. For example, the Committee’s press release noted that we must determine acceptable methods for banks to estimate a key driver of credit risk. Banks that adopt the advanced internal ratings-based approach to credit risk will be required to estimate how the loss-given-default parameter for borrowers may vary when the economy experiences a downturn.

Over the last few months we have completed significant changes in a number of important areas: we decided to calibrate regulatory capital to unexpected losses only; we have made significant improvements to the provisions relating to securitisation, credit risk mitigation and operational risk; we have clarified Pillar 2 and the calibration process; we have specified the treatment of revolving retail exposures, and we continue to make progress in preparations for the implementation of the Accord. Having reached consensus on the framework, the Basel II process is entering a new stage. Member authorities will now focus on transforming the text of the framework, which will be published at the end of June, into national rules. This will require national supervisors to conduct rule-making and adoption processes relevant to their jurisdictions, something that is well under way in many countries. In addition, the Committee agreed on the timetable for the implementation of the Accord in member countries. This is the second important development of last week’s meeting in my view. The Committee confirmed that the new framework will be implemented by year-end 2006 for those banks adopting the standardised and foundation approaches to risk. With regard to the most sophisticated approaches to risk measurement and management, the Committee considered the needs of national supervisors and of the industry and decided to provide an additional year.
Other factors affecting inflation, such as current and expected economic performance against the potential rate of development, expansion of monetary assets in the economy, and the public’s expectations of financial markets, exert inflation-restraining impact. Our projections for the rest of the year support the maintaining of positive performance of Albanian economy. Consumption and private investments are expected to grow further, whereas following the 2010 slowdown the fiscal sector is expected to provide a positive contribution to economic growth. However, the demand growth is likely to be below our economy’s potential even for 2011. This will condition the downward inflation pressures from the domestic economy, which are expected to offset the foreign price rise effect. On the other hand, the Bank of Albania is determined to take appropriate measures to meet its inflation target in the medium term. *** The Supervisory Council judges that, based on the above overview, medium-term inflationary pressures are in check. Inflation expectations remain anchored at the Bank of Albania’s inflation target. In the absence of any unexpected shocks, inflation is expected to be within the Bank of Albania’s target over the medium term. Also, the risks around this central scenario appear to be balanced. BIS central bankers’ speeches  3  At the end of the discussions, the Supervisory Council concluded that monetary conditions appear suitable for meeting the inflation target in the medium term and decided to maintain the interest rate unchanged, at 5.25%. 4  BIS central bankers’ speeches

There has also been increasing recognition of the need for macro-prudential policy in dealing with the problem of systemic risk as well as coordination between monetary policy and financial system policy, given that such measures could likely have a macroeconomic impact. The idea is not new to us as you may recall our prior uses of loan-to-value ratios and tightening of credit card rule to prevent the build-up of vulnerabilities in the real estate and household sectors. Ladies and gentlemen, When all things considered, though regulatory weakness was partly to be blamed for the recent global financial crisis, it is not that the tenet of risk-based supervision is flawed, but rather failures occurred where there was complacency in overestimating the ability to understand and manage such risks. Therefore, I believe one of the key lessons to be drawn from this global crisis is that we must put great focus and vigilance on supervisory process, rather than just redrafting the written regulation. Finally, there is pressing call for stronger international cooperation and dialogue among supervisors. This is so because the complexity and cross-border linkages of financial systems will continue to increase and while we are still grappling with the appropriate supervisory structure to handle cross-border issues, information flows, at this time, continue to be limited. Thus, without effective communication and cooperation, it will be difficult to prevent or contain future financial crisis spillovers effectively.
Our first priority must be to maintain low and stable inflation. Of late there have been those who doubt our ability or willingness to meet the inflation target. In May, CPI inflation was 3.4%, and for much of the past three years has been above the 2% target. Over that period the rise in prices in excess of that implied by the target was around 3%. That can be accounted for by the direct impact on the price level of the fall in sterling’s effective exchange rate, of about 25%, which is supporting the rebalancing of the UK economy. Inflation has not only been higher than in the previous decade; it has also been more volatile. Our ability to keep measured inflation close to the target has been hindered by movements in world oil and commodity prices, as well as the temporary reduction in VAT. Oil prices, for example, have gyrated between $ and $ a barrel. Although such price changes clearly lead to higher or lower CPI inflation for a period, by themselves they do not generate the continuous rise in prices to which monetary policy should respond. A continuous rise in prices would ordinarily be associated with strong money growth, wage inflation, rapid increases in money spending and an excess of demand over the supply capacity of the economy.

There are always risks to the outlook – on both sides – and to ignore them in either direction would be foolish. What the MPC must do is continually update its assessment of those risks, and set policy in order that, on balance, inflation remains on track to meet the target in the medium term. No one should doubt our determination to meet the target. The inflation target introduced in 1992, and the new regime for monetary policy decision-making introduced in 1997, have shown beyond doubt that monetary policy in the United Kingdom is dedicated to maintaining low and stable inflation. Indeed, for ten years, I was, to my frustration, regularly described as a hawk. But I am neither hawk nor dove. Everyone on the Committee votes according to his or her judgement of the outlook for the economy. I have not changed. The Committee has not changed. Circumstances have changed. When confidence, output and trade around the world collapsed in the autumn of 2008, the balance of threats to the inflation outlook shifted rapidly to the downside. So the Bank of England and central banks in other industrialised countries responded by reducing official interest rates nearly to zero and injecting money directly into the economy. There will come a time when our task will be to manage the exit from such an abnormal degree of monetary stimulus. The MPC will not hesitate to begin to withdraw the current degree of stimulus when we judge that is necessary.
But even if that is achieved, I know from my own experience how difficult the actual implementation sometimes can be, not least for political reasons. The events of the past decade have made it clear that greater efforts are needed to strengthen the functioning of markets. I would like to make the point that today’s favourable trends in the world economy should not lead us to conclude that the danger is over. We have witnessed too many crises in the last decade not to know that market confidence can suddenly shift. Instead, policymakers BIS Review 65/2000  2  throughout the world must continue to work on forestalling new problems both because some evident threats to international financial and economic stability still remain and because there may well be vulnerabilities that are less evident. But the chances of the global economy continuing along the path towards sustainable growth without disruptive financial instability can be enhanced by implementing appropriate reforms. Monetary stability Let me now turn to monetary stability. In the last decade a growing number of countries have chosen to conduct monetary policy with an explicit target for inflation. One reason behind this choice has no doubt been these countries’ poor experience with a fixed, but adjustable, exchange rate regime. The first country to formally adopt a policy of targeting inflation was New Zealand in 1990. Canada did the same in 1991, followed by the United Kingdom, Sweden and Australia. Other countries have also introduced some variant of inflation targeting since then.

If asset prices have been driven up to unsustainable levels that do not correspond to the underlying fundamentals, we are faced with a special kind of problem. We know from experience that speculative asset price bubbles eventually burst. When they do, collateral values will fall and balance sheets deteriorate, potentially threatening the stability of the banking system. To avoid this kind of development, the central bank needs to closely monitor the potential for excessive credit growth and the possibility of asset price bubbles building up. It seems that historically the forming of speculative price bubbles has been closely linked to an excessive expansion of credit. But we need to operationalise both the concept “excessive” and the difficult concept of an asset’s “fundamental value”. As history has shown us, judging to what extent rising asset prices reflect strong fundamentals, rather than the “irrational exuberance” of investors, is easier said than done. Nevertheless, certain important risks related to asset prices need careful watching in today’s world. The first risk is that imprudent lending could fuel unwarranted asset price increases - as so often in the past. Although there is little evidence to date of a general lowering of credit standards, credit growth has been very rapid and loans to finance equity purchases have risen sharply in some countries. BIS Review 65/2000  4  Ensuring that investors are not sheltered from the consequences of their sometimes misguided investments is important for maintaining prudent lending standards.