samchain/econo-pairs-v1 huggingface dataset:
The construction of ERM II, with a broad band for exchange rate fluctuations, would then make it possible for the interest rate to deviate somewhat from the level in the euro area. The problems that may arise in such a situation depend on how economic policy in general works. Provided Sweden is more or less in phase with the cyclical pattern in the euro area, there need not be any serious conflicts. The monetary policy objectives are broadly the same. There are therefore grounds for supposing that monetary policy can be much the same as at present. The starting point here is a credible central rate that market players expect will be the rate at which the 3  BIS Review 96/1999  krona is ultimately converted into euro – two assumptions that are both very reasonable. A case in point is what happened in Finland. Monetary policy there continued to target inflation even after the markka had been included in ERM II; following its entry, the markka stabilised and was close to its central rate. This brings me to the recent discussion in Swedish media. Briefly, it has been argued that Sweden is in the process of moving out of phase with activity in the euro area, mainly because fiscal policy is unduly expansionary. At present we can handle such a situation because Sweden is in a position to implement an independent monetary policy focused on price stability; the Riksbank can quite simply raise interest rates and thereby counter any tendencies to overheating.

It is often sufficient with loans with a three to five year term to restore balance in the foreign payments. In the case of developing countries, however, it has increasingly been seen that short-term instability often depends on deep-seated structural problems. Examples of this type of problem are inability to collect taxes, inefficient bankruptcy legislation, widespread corruption and weaknesses in the banking sector. These types of issues are in the borderland between the mandate of the IMF and the World Bank and the two organisations collaborate in initiatives in this area. Among other things, the IMF and the World Bank have certain types of loans which, in combination with economic reform programmes, are focused on building long-term, strong structures in poor countries. Another type of structural problem is the unsustainable foreign debts burden that some of the most poor developing countries have to contend with. For a couple of years, the IMF and the World Bank have been working together in debt relief projects for these countries. In practice, this implies writing off parts of the debts. The debt relief goes hand-in-hand with economic reforms in the countries, aimed at decreasing poverty. In the longer term it is only through a responsible economic policy, focused on growth, stability and sound government finances, that these countries can avoid debts building up again.
In the minutes of the monetary policy meeting held in June 2010 (Sveriges Riksbank 2010), I show that a more expansionary monetary policy than is assumed in Claussen, Jonsson and Lagerwall (2011) can almost neutralise the effects on inflation and GDP of a fall in house prices, even taking into account the zero lower bound for the repo rate. 20  Armelius and Dillén (2011). BIS central bankers’ speeches  9  Another important difference between the current situation in Sweden and the situation in Sweden prior to the 1990s crisis and in the Baltic countries, Ireland, Portugal and Spain prior to the most recent crisis, is that the economies in the latter cases were clearly overheated with unsustainable growth and price and wage inflation. One can scarcely claim that the Swedish economy is overheated today or even that the construction and housing sectors are overheated. As I said, housing prices appear to have levelled off (Figure 1). Figure 4 Housing investment Per cent of GDP  Sources: Bureau of Economic Analysis, Central Statistics Office Ireland, Federal Statistical Office, Germany, National Statistics Institute, Spain and Statistics Sweden  So how is the lenders’, that is the banks’, resilience? A lack of financial strength in the banks created major problems in Sweden during the 1990s crisis and is also causing problems for several countries in Europe now.

Criteria for an Appropriate Future Interest Rate Path – A Practician’s Approach”, Staff Memo No. 2005/6, Norges Bank. Reinhart, Carmen M. and Kenneth S. Rogoff (2009), This Time is Different, Princeton University Press. Rogerson, Richard (1997), “Theory Ahead of Language in the Economics of Unemployment”, Journal of Economic Perspective 11 (Winter), pp. 73–92. Svensson, Lars E.O. (2010), “Why a lower repo-rate path?” speech held at Umeå University, 24 February 2010. Svensson, Lars E.O. (2011a), "For a better monetary policy: Focus on inflation and unemployment”, speech at Luleå University on 8 March 2011. Svensson, Lars E.O. (2011b), “Practical Monetary Policy, Examples from Sweden and the United States”, Brookings Papers on Economic Activity, Fall 2011, pp. 289–332. Svensson, Lars E.O. (2012a), “The Possible Unemployment Cost of Average Inflation below a Credible Target”, working paper, www.larseosvensson.net. Svensson, Lars E.O. (2012b), “Utmaningar för Riksbanken – penningpolitik och finansiell stabilitet,"(Challenges for the Riksbank – monetary policy and financial stability) Ekonomisk Debatt no. 5 2012, year 40, 17–29. Sveriges Riksbank (2010), “Minutes of the monetary policy meeting”, no. 3, 30 June 2010. Sveriges Riksbank (2011), The Riksbank's inquiry into risks in the Swedish housing market, www.riksbank.se. Sveriges Riksbank (2012a), “Minutes of the monetary policy meeting”, no. 3, 3 July 2012. Sveriges Riksbank (2012b), Monetary Policy Report, July 2012. Walentin, Karl, and Peter Sellin (2010), “Housing Collateral and the Monetary Transmission Mechanism”, Sveriges Riksbank Working Paper No. 239. BIS central bankers’ speeches  15
Unlike in an epidemiological context, however, both behavioural responses have aggravated stresses in the financial system. How so? 14  May (2006), Newman (2002). 15  Epstein et al (2008) provide a range of examples. 16  Wheelis (2006) provides an excellent example of the role of human (in this particular case literal) flight in th transmitting the Plague to Europe in the 14 Century. Transmission of the Plague was reputedly the result of Genoese traders fleeing the Crimean city of Caffa after the Mongol army had catapulted infected corpses over the city walls. BIS Review 53/2009  7  Banks entered the crisis with a large portfolio of risky assets. As risk materialised, banks rationally sought to protect themselves from infection from other banks by hoarding liquidity rather than on-lending it. The result has been enduring stress in money markets. Banks’ mutual interdependence in inter-bank networks meant that individually-rational actions generated a collectively worse funding position for all. That, in turn, contributed to the second behavioural response. Unable easily to fund their asset portfolio, some financial firms instead opted for flight through sales of assets. These acted like the railroad out of Memphis, placing downward pressure on asset prices and thereby spreading the infection to other institutions. Others’ immunity to infection was simultaneously being lowered by widespread marking of assets to market. In escaping the plague, asset flight served to propagate it. These behavioural dynamics – panic hoarding of liabilities, distress sales of assets – have been defining features of this crisis.

Further, I call upon all banks to partner with the Government in alleviating the suffering of our people by contributing to the development of our nation. After all a growing and more developed economy will contribute more to the banking sector and therefore increase more profits. Banks need to seriously engage in activities that will contribute to the environment in which they are benefiting. This can be achieved in many ways including; •  By making available more loans that will increase the productivity of our economy;  •  By encouraging more Zambians to open bank accounts through provision of easily accessible and affordable products and services;  •  By providing products and services that suit the needs of the various customers across the country and not only those that suit people in Lusaka;  •  By opening more branches across the country; and  •  By installing more ATMs  All this, Ladies and Gentlemen, will greatly contribute to the emergence of a middle class in Zambia, which will bring real economic development and lead to poverty reduction. I am pleased to note that despite the recent challenges facing the financial sectors in the world, Standard Chartered Bank’s commitment to growth and re-investment is unwavering. The bank continues to be adequately capitalised with its total assets accounting for 14.4% of the banking sector’s total assets while its deposit base remained strong at 16.3% of the total industry deposits.
Regulatory decisions and economic drivers will affect the status quo These examples give a sense of the level of integration between UK and continental financial markets, in particular for certain complex and sophisticated financial services linked to derivatives markets and investment banking activities. However, Brexit will change this status quo and a degree of decoupling is likely. It is difficult to make firm predictions about the extent to which our two financial systems may drift apart or remain integrated. The contours of the future EU-UK relationship in financial services are still uncertain, and the economic drivers and regulatory choices which could reshape this relationship will probably only be felt over time. The EU will need to balance the benefits of continued integration with the UK financial system against potential risks to financial stability, consumer and investor protection, the level playing field and the integrity of the Single Market. As I have said in the past, this path will not be easy for either side of the Channel, and the risks linked to regulatory divergence and a potential race to the bottom should not be taken lightly. Allow me to briefly discuss the regulatory dimension of this question. A possible scenario is that the United Kingdom will not seek to remain a member of the EU Single Market once it leaves the EU. This means moving away from a fully-integrated relationship underpinned by the EU’s single rulebook and single passport for financial services, and relying instead on the EU’s equivalence framework for third countries.

Interest rates were kept at a low level for a long period, but are now on the rise. The world economy is again expanding at a brisk pace. Over the past three years, global production has increased by about 14 per cent, which is the strongest upturn since the beginning of the 1970s. In the UK and US, interest rates have already moved up to a more normal level. In Sweden and the euro area, the central banks have started to raise interest rates. Over the next year, further interest rate increases are expected in the euro area, the UK, Sweden, Switzerland, the US, Canada, Japan and Australia. Norway has also experienced a fairly long period of falling and thereafter stable, low interest rates. Price inflation was subdued, and there was idle capacity in the economy. Real interest rates have been very low and markedly lower than a neutral level. In line with the prospects I presented to the Committee last year, we have started raising interest rates. To date, Norges Bank’s key rate has been increased by 0.75 percentage point. Consumer price inflation has edged up, but is still very low even close to three years after the start of the cyclical upturn. Consumer prices adjusted for tax changes and excluding energy products have risen by 1 per cent over the past twelve months1. Prices for imported consumer goods have fallen almost every year since the mid-1990s, reflecting freer trade and the shift towards imports from lowcost countries.
The chart shows the net investment result since the first quarter of 2010 for the foreign exchange reserves, as well as for the individual components. The dominant role of exchange rate movements is clearly evident. In the past, too, exchange rate movements have posed by far the greatest risk to our portfolio. Taking a long-term view, exchange rates have been responsible for about 80% of the total risk on the foreign currency reserves. Reform of interest rate benchmarks Following last year’s revelations that Libor interest rates had been manipulated, various activities to reform the Libor and other interest rate benchmarks are under way. The SNB is involved in these reform activities at both international and national level. The objective is to improve the credibility and acceptance of the existing interest rate benchmarks or, where appropriate, to take steps to ensure the provision of robust alternative interest rate benchmarks. International efforts are being coordinated by the Financial Stability Board on behalf of the G20 countries. They involve not only central banks and supervisory authorities but also an international group of private sector financial market participants. They are examining, first, the extent to which the existing Libor interest rates fulfil the requirements laid down by securities supervisors last July (the IOSCO standards). Second, they are investigating whether there are alternative interest rate benchmarks which would better meet the needs of the market and the requirements of supervisory authorities in the longer term.

This is probably due, not least, to progress in overcoming the crisis as well as encouraging economic data from the euro area. However, investors are still cautious, so that demand is still high for investments seen as safe havens. Consequently, in recent months, the Swiss franc has moved in a narrow range above the minimum exchange rate of CHF 1.20. Nevertheless, in view of the progress in the euro area, many market participants expect that the Swiss franc will depreciate. Despite this progress, it is still too early for an all-clear. Conditions on financial markets could change again rapidly. In order to counteract possible tensions on financial markets and lessen their potential impact on the economy, six leading central banks including the Swiss  BIS central bankers’ speeches  1  National Bank (SNB) converted their reciprocal swap lines into a standing arrangement in October. These swap lines had initially been arranged on a temporary basis at the height of the financial crisis, in order to secure access to liquidity. Developments in foreign exchange reserves At the end of September 2013, our holdings of foreign exchange reserves stood at CHF 443 billion. I would now like to make a few comments on income from foreign exchange reserves. I should begin by stressing that monetary policy has priority over investment policy, and that generating income is not the primary objective of investment policy. We are guided, first of all, by the criteria of security and liquidity.
The policy debate – inside and outside the Bank – has recently refocused on the possibility of some other changes in the way our economy functions. Less than 18 months ago, the Bank’s interest rate was just 3.5%, essentially because the MPC wanted to stimulate private sector domestic spending to offset the effects on aggregate demand of weak net trade, given adverse developments in the world economy. As global conditions recovered, and with a pick up in public sector spending, we were able gradually to withdraw much of that stimulus during 2004 in a series of steps which were widely anticipated and understood across the financial and real economy (Chart 2). With the slack in the economy being absorbed, attention shifted to gauging the degree of demand pressures and their implications for the inflation outlook. In particular, on the basis of some simple statistical relationships, a question has been posed about whether there has been some change in the extent to which demand pressures feed through into wages and prices. Most notably, as discussed in the Bank’s February Inflation Report, the steady falls in unemployment over recent years have not been accompanied by a rising rate of earnings growth (Chart 3). These issues obtained some prominence towards the end of last year when, despite apparently buoyant demand, inflation on the CPI measure fell to 1.1%.

Companies applying to list on the SGX will also send their draft prospectuses to the exchange for vetting to ensure that they meet SGX's disclosure requirements. When the capital-raising provisions in the Companies Act are transferred to the new SFA later this year, MAS will take over from RCB as statutory regulator for prospectus registration. We are now reviewing the prospectus registration regime with a view to enhancing market accountability, and raising the standards of prospectus disclosure. Under the proposed regime, MAS will register a prospectus not earlier than 14 days and not later than 28 days after an issuer has lodged the prospectus with MAS. This period will allow for both regulatory review by the MAS and SGX, and public scrutiny and comment. (Currently, there is no public scrutiny before a prospectus is registered.) The prospectus will be published on the Internet to give investors the opportunity to scrutinise the prospectus prior to its distribution, and raise any issues of concern. This model is similar to that which has been introduced in the Australian markets. There will be a more measured approach to prospectus review by the regulator. I was told that SGX currently vets an average of five drafts for every prospectus that gets published. This is clearly not desirable going forward. The review of prospectuses by the MAS and SGX will focus, respectively, on compliance with laws and SGX's listing requirements on prospectus disclosure.
Indeed, anecdotal reports suggest that consumer spending during the month of February was adversely affected by the increase in taxes. Third, while we avoided the full fiscal cliff back in early January, there remain several vexing fiscal policy issues on the immediate horizon that, depending on how they are resolved, could adversely affect the economy. Indeed, at this time it looks like the sequester will go into effect on March 1. If it remains in effect for the full year, estimates from forecasters suggest that the sequester could reduce projected real GDP growth for 2013 by about ½ percentage point, which would be on top of the ¾ to 1 percentage point drag coming from already-implemented fiscal policy actions. Presentations on household debt and credit Our special topic today is household debt and credit. Over the last several years, researchers at the New York Fed have put considerable effort into improving public understanding of consumer debt and credit conditions. Consumer debts occupy the intersection of Main and Wall Streets, and are thus of great interest to the public. In addition, of course, by most accounts the financial crisis grew out of the mortgage market – the largest and most important form of consumer debt. So to better inform the public and policymakers, New York Fed economists have developed a series of quarterly reports and topical studies on consumer debts. We will have two presentations.

After falling by 3.1 percent in 2009, growth in real GDP averaged 2.4 percent in 2010, 1.8 percent in 2011 and 2.2 percent in 2012, a consistent but sluggish pace. This sluggishness has been quite evident in the labor market. After falling by 421,000 per month in 2009, payroll employment grew by 85,000 per month in 2010, 175,000 per month in 2011, and 181,000 in 2012. To put these numbers in perspective, the trend rate of growth of the civilian non-institutional population is around 200,000 per month. The unemployment rate has declined from a peak of 10 percent in October of 2009 to just under 8 percent recently, due largely to the fact that the labor force participation rate has declined by considerably more than would be suggested by underlying demographic trends. Fortunately, long-term unemployment, defined as those unemployed for 15 weeks or longer, has declined from nearly 9 million in the first quarter of 2010 to about 6.6 million in recent months – a decline of 28 percent. The median duration of unemployment has declined from 23 weeks in the second quarter of 2010 to 16 weeks recently. Nonetheless, as of January there were still about 3.2 million fewer jobs than at the end of 2007. The unemployment rate remains elevated, despite a significant decline of the labor force participation rate. And the ratio of employment to population in January was lower than it was at the end of the recession, indicating that employment growth has not kept pace with population growth.
Repo rate forecasts, per cent, quarterly averages 7  7 90% 75% 50% Outcome Forecast  6 5  Greater effects of support measures Confidence strengthened more quickly  6 5  4  4  3  3  2  2  1  1  0  0  -1  -1  Phasing out of support measures Higher productivity  -2  -2 04  05  06  07  08  09  10  11  12  Source: The Riksbank  We are currently expecting to hold the repo rate unchanged at a low level for a further period to come, until autumn 2010. This is necessary to contribute to a stable recovery and to attain the inflation target of 2 per cent. Moreover, we Executive Board members decided at the most recent monetary policy meeting that further measures were necessary to contribute to interest rates on loans to companies and households remaining low. We therefore decided to offer the banks the opportunity to borrow from the Riksbank at a fixed interest rate and a maturity of around 11 months. The loan auction was held on Monday this week and the final amount lent was SEK 95.3 billion. We expect the loans to the banks to complement the repo rate tool in a way that enables monetary policy to have the desired effect. Once economic activity has recovered, we are intending to raise the repo rate to more normal levels.

Second, since foreign banks are active in more than one market they usually hold a more geographically diversified credit portfolio. Therefore they are less likely to be affected by stress in the local market. Third, as affiliates of foreign-owned banks generally have better access to international funding they contribute to less volatile lending over the local business cycle. For this reason they can serve as a countervailing force to the local business cycle. Finally, as I have already touched upon, foreign bank entry can have a positive impact on the host country authorities, which in turn may induce stricter regulation and improved financial supervision. For all these reasons foreign banks have the potential to contribute to the overall soundness of local banking systems. Having said this, I am of course aware that there are also problems associated with cross-border banking. First of all, as has become evident during this crisis, the increasing globalisation of financial markets can create strong contagion effects across markets. Problems in one country tend to spill over to other countries very fast, generating a snowball effect where problems grow along with the costs of handling them. Furthermore, it has become clear that it can be extremely difficult and costly to deal with distressed banks in a cross-border setting. The reason for this is that there are many stakeholders involved and that the resolution of failing institutions is even more poorly defined at the international level than at the national level.