samchain/econo-pairs-v1 huggingface dataset:
For example, Barbara Rossi and co-authors find that while risk fell sharply after the great financial crisis, Knightian uncertainty – situations in which people might be unable to assign correct probabilities to future outcomes – remained persistently high even after the end of the crisis.11 In these cases, investors still have to make a decision, and judgement – often based on current observables – is usually the only basis they have. Whatever the ultimate reasons, does it matter if the inflation risk premium is low? There are two sides to the discussion. From a monetary policy perspective, what matters most is that inflation expectations remain at levels consistent with price stability. At the margin, a low inflation risk premium is positive as it signals increased confidence in the central bank’s ability to achieve its inflation aim. But from a financial stability perspective, and here I again refer to previous work presented in the ECB’s Financial Stability Review, a low inflation risk premium may be a matter of concern if it indicates complacency about future adjustments.12 In this case, a reappraisal of investors’ view about future risks to global inflation may cause a correction of global risk premia, in particular in an environment of historically low volatility, as you can see on my next slide. Oil prices may be a potential catalyst. ECB internal research finds that energy price shocks have become considerably more persistent lately, which could fool investors into believing that they are bound to stay at current moderate levels in the foreseeable future.

In Scandinavia and the Benelux countries, the pressing need for economies of scale has forced major banks to look beyond their domestic markets for partnerships, and cross-border mergers have been common. In Singapore, the same thing is already happening in the telecommunications industry. The Government has decided to allow, and indeed to encourage, dominant local players like Singapore Telecom to go beyond foreign acquisitions, to seek foreign mergers. As Singapore banks increasingly confront the same imperative, we will have to consider exactly how far we are willing to trade off retaining a few Singaporean-controlled banks against the logic of globalisation. Conclusion The Asian crisis has led to a rethink of the consensus in favour of globalisation and free capital flows. The result has been to reaffirm the logic of globalisation, and the value of free markets and free trade. But it has also caused a more sober appreciation of the risks of international flows of capital, and clarified the necessary preconditions for countries to minimise the difficulties and reap the benefits from freer capital flows. Singapore’s experience in bringing our financial sector up to best practices during and after the crisis shows how complex and delicate a task it is, despite Singapore’s relatively strong starting point. It will be even more challenging for countries in less favourable circumstances, to find their way forward in post crisis Asia. In this quest, these countries deserve the full support of the international community. 9  BIS Review 76/2000
Higher volatility led banks and secured lenders to raise margins, while concern about counterparty risk and their own funding needs made banks reluctant to on-lend liquidity. Higher margins on repo and increased collateral calls due to credit ratings downgrades reduced the quantity of assets that could be financed in repo markets and elsewhere, prompting further asset sales.6 As wholesale investors started to exit, this set in motion a bad dynamic – a fire sale of assets that cut into earnings and capital. This just increased the incentives of investors to run and for banks to hoard liquidity against the risk that they could themselves face a run. This downward spiral of fire sales and funding runs was a key feature of the financial crisis. Specific institutional weaknesses The fragility of short-term wholesale funding was greatly aggravated by certain critical institutional shortcomings in these markets, particularly in the structure of the tri-party repo system and the U.S. money market mutual fund business. Through the tri-party repo market, the two large clearing banks were providing a large amount of intraday credit to securities firms each day to facilitate the daily “unwind” of the prior day’s transactions.7 In the run-up to the crisis, the daily “unwind” practice helped make tri-party repo look like a very liquid investment while still being an apparently highly durable source of funding. This masked the underlying risks and contributed to weak risk management practices.

But there are also changes in various trends in the Swedish labour market following the financial crisis that may have contributed to the low prices and wages – an increasing number of people entering the labour force, compensation rates in the social insurance systems falling and employees’ negotiating power appearing to have weakened. Developments since the financial crisis 2008–2009 thus indicate that inflation and resource utilisation are not governed solely by short-term changes in demand. Structural changes and more trend-like changes also play a role. We therefore need to give more consideration to such changes in the monetary policy analysis. In addition, I have illustrated that the flatter Phillips curve, that is, the weaker covariation between unemployment and wages, does not necessarily mean that the impact of monetary policy has declined. Monetary policy affects demand and resource utilisation through many different channels. Unemployment is one channel, but labour force participation, employment, and job vacancies are some examples of other channels through which monetary policy can have an impact. 25 The term “unconventional” may be a little misleading in the sense that, for instance, purchases of government bonds do not go beyond the bounds of what central banks normally do when conducting monetary policy. 22 [24]  Thirdly, changes in trends are often difficult to detect immediately and are difficult to assess. One consequence of this is that central banks should act more cautiously and rely more on historical correlations that are more certain.
The attraction of this is that existing shareholders will retain some of any upside, though they will pay via lower returns for the risk premium on the cost of Co-Cos. I am quite attracted to CoCos, but we need to think through whether they will create the necessary incentives to new lending. I should add that, while we are seeking to discourage banks from deleveraging in the form of lending to the real economy, we are not against releasing existing capital to support new lending where that capital is currently tied up in non-core assets, which can either be sold or run off because they are not needed on the balance sheets of banks to support the real economy, such as trading book proprietary assets. BIS central bankers’ speeches  3  Finally on this subject, let me briefly describe what we have done so far. The government and the Bank of England have introduced the Funding for Lending Scheme (FLS). FLS is in large part a response to developments in financial markets, notably the increase in the cost of bank funding which was, inevitably, being passed on in the form of higher costs of lending. In the twelve months up to the middle of this year, business lending and mortgage rates rose and the evidence we had suggested that there was an accompanying tightening in the terms and conditions of new lending.

In 1999 the GDP growth rate is expected to be rather more than 3 per cent. This implies that in 1998 and 1999 growth will be stronger than the increase in potential output, for which the annual trend is estimated to be just over 2 per cent. That means that today’s surplus capacity will be activated by degrees. It is difficult to tell how quickly this will happen. The Riksbank considers that the output gap -- a way of attempting to gauge unutilised capacity in the economy as a whole -- is currently about 2 per cent of GDP. With the growth rates envisaged above, the gap would then close some time in 1999. Other information with a bearing on when inflation might be likely to accelerate was also included in the inflation report. Estimates of structural unemployment and thereby, indirectly, of the level of unemployment that can be combined with stable, low inflation, suggest that risks of inflation also exist less than two years ahead. The rate at which capacity utilisation rises may likewise play a part. A rapid reduction of unutilised resources might generate inflationary impulses even though there is still a capacity surplus at total level. Risks in the wage negotiations Wage formation is particularly relevant at present because the settlements that are due in the coming six months will cover a large part of the labour market. Labour shortages are not yet being reported from more than a few sectors, but experience shows that the domino effects can be substantial.
We have also made extensive purchases of Swedish government bonds. Although it is difficult to distinguish the effects of different measures on the economy, our assessment is that the impact of monetary policy is essentially functioning as expected. The interest rates charged to households and companies on loans with short maturities have fallen more or less in line with the repo rate. Data from the financial markets also imply that the asset purchases have had the intended effect. Our intention with this expansionary monetary policy has been to increase the rate of inflation so it approaches the target of 2 per cent. As I mentioned earlier, underlying inflation has also shown an upward trend for some time now, at the same time as economic activity has strengthened and the situation on the labour market has gradually improved. But although developments are mainly heading in the right direction, there is still considerable uncertainty. Economic activity became stronger in the euro area, but several countries were still being held back by high indebtedness and as yet unresolved structural problems. The course of events in Greece also entails a tangible risk. If the situation deteriorates, unease may spread to other countries in the monetary union. Uncertainty over how the krona will develop is another risk. The relatively strong fluctuations on the foreign exchange market are making it difficult to assess how the exchange rate will continue to develop. A too strong exchange rate would risk halting the upturn in inflation that has begun.

With regard to the euro area as a whole, optimism among households and companies has been somewhat subdued in recent months, probably as a result of the crisis in Greece. However, the most recent survey in July indicates that optimism among companies is rising again, which may be due to the third loan programme for Greece appearing to be within reach. GDP growth in the euro area in the second quarter, compared with the same quarter last year, was 1.2 per cent according to our forecast. US developments still looking good We see continued signs of good economic growth in the United States. GDP rose by just over two per cent in the second quarter, compared with the same quarter last year, see Figure 7, entirely in line with our forecast. Household consumption remains strong. Exports also rose significantly in the second quarter despite the dollar appreciating for a period of time. The housing market is continuing to recover and this creates an increasing number of jobs. Unemployment fell to its lowest level since 2008. The US Federal Reserve signalled at the end of July that it still has plans to raise its policy rate this year. The labour market is expected to be able to develop better than was previously believed an only a “few” further improvements are needed before monetary policy may need to be tightened. However, although most signs are pointing in the right direction in the US economy, the recent statistics on wage developments have been at relatively low rates of increase.
Schweigaard’s brother wrote2: “When the compulsory payment to Norges Bank came in addition – Anton and I witnessed our parents’ silverware and gold ornaments being melted down to pay the tax – it is easy to understand that many of the town’s inhabitants found it difficult to make ends meet, which unfortunately was also the case with my parents and grandmother, and times were hard.” But Schweigaard was a talented man and it was said that he had probably never been as happy as when he passed his examen artium with flying colours and was admitted here to the University of Christiania. I expect that as you embark on your economics studies, you will get down to business with the same energy and enthusiasm as Schweigaard did then. I expect you will learn that economics is not a perfect subject. But I know that the study of economics will provide you with a useful tool to further improve both the subject and the institutions. In my lecture today, I will provide some insight into how Norges Bank makes use of economic models and touch upon the issues you will have the opportunity to explore further in the course of your studies. Inflation is a persistent rise in the general price level or, in other words, a fall in the value of money. When inflation is high, it is as a rule also variable. This generates uncertainty for households and firms. It is costly to bring high inflation under control.

The blue line in the chart shows that GDP growth was markedly higher than trend growth in the latter half of the 1990s and in the period from 2003 to 2008, but that it has risen somewhat more slowly in the period following the financial crisis. When developments in output are compared with inflation, a pattern emerges. A pickup in GDP growth has consistently occurred 4–5 quarters before a rise in inflation.5 While the chart says nothing about causality, turning points in GDP growth seem to be a fairly reliable leading indicator of turning points in inflation. The path from changes in output to inflation passes through the labour market, among others. We have seen that when economic growth has picked up, unemployment6 has declined one to two quarters thereafter. The relationship between the “output gap” and the “unemployment gap” is fairly strong. This is a useful observation because GDP figures are published with a considerable lag and often subject to revision, while the unemployment data published at the end of each month are not revised. If there is uncertainty about the GDP figures – which there often may be – falling unemployment can be an indication of a recovery in economic growth. Labour market developments, in turn, affect wage growth, as illustrated by the blue line in the chart. High unemployment results in low wage growth, and vice versa. The chart shows that in periods of falling unemployment, wage growth7 moves up fairly rapidly.
The yield on long-term bonds in Swiss francs is also around two percentage points below that on corresponding euro paper. This has lowered the attractiveness of the Swiss franc somewhat compared with the euro. The stabilisation of the euro/Swiss franc relationship – albeit at a relatively high rate for the Swiss franc – is a positive development. Experience has shown that the exchange rate development has a significant influence on business activity in Switzerland. We are still determined to counteract any additional upward trend of the Swiss franc that might jeopardise the economic recovery. BIS Review 73/2002  1  Bonds In the capital markets around the world, nominal yields dropped considerably (see graph). However, borrowers with medium and low credit ratings did not benefit much from this development as credit risk premiums rose during the year. This also limits the macroeconomic stimulus effect of the yield decline. In addition, real interest rates did not decrease to the same extent because simultaneously inflation expectations again subsided markedly. Particularly in the euro's core countries – first and foremost in Germany – real interest rates are high. They depress the economic outlook and increase the growth differences between the member countries. Shares Stock markets were characterised by extraordinarily sharp fluctuations and hefty price losses. This was due to risk aversion increasing in the course of the year and the effectively higher risk level, which both depressed share prices. The sharp price swings mirror the difficulty of assessing the risks and opportunities in this environment.

Hence, it is clear that not only are the present day poor nations struggling in the emerging, highly complex and controlled economic environment, they are also facing reduced resource transfers, and not being accorded special treatment they should be afforded in order to propel them out of poverty. Some may however argue that the tremendous benefits of globalization has levelled the playing field and that advantages are available to any and all who care to access, and it is just unfortunate if some persons are unable to take advantage of these conditions. Nevertheless, I believe we are all aware that weaker communities have lesser chances of access and that situation leads to widening even further, the ever-widening gap. Therefore, it is timely and appropriate that this forum addresses the need to impress upon the more wealthy nations to increase aid flows, open out greater trading opportunities, and move towards higher investment and resource build-up in the lower income countries. Lest I be misunderstood, let me add that, not for a moment am I suggesting that the progressive steps the world and the international community have taken over the past few decades in developing new standards and norms are in any way, inappropriate or unwelcome. Those initiatives were certainly necessary and have been beneficial for the overall advancement of society.
And second, balance sheet effects can have material impacts – affecting the link between current account deficits and external debt burdens, as well as the external adjustment process itself. A corollary of financial globalisation has been the increased importance of market forces, rather than institutionalised inter government agreements, in providing incentives for policy makers within systemically important countries or regions to follow policies that are mutually consistent – notwithstanding the longevity of the Bretton Woods sisters (the IMF and the World Bank). The second important feature of today’s world is the rising economic importance of a group of Asian emerging market economies who heavily manage their exchange rates. As a result, the international monetary system has mutated into a ‘hybrid’ system in which some systemic countries float their exchange rates while others fix or manage them. One implication is that the pressure for adjustment to any given shock can be very asymmetric relative to a floating rate world. Thus, market driven exchange rate changes are likely to be concentrated on particular blocs rather than diffused across the system as a whole. As Obstfeld and Rogoff and others have pointed out, this is a situation which could create some difficult policy frictions. These have the potential to undermine free trade, and weaken world growth. The third feature is the continued dominance of the US dollar as both a reserve currency as well an anchor for those countries that choose to fix or manage their exchange rates. But nowadays countries have choices.

For one thing, while evidence suggests that quantitative easing in particular succeeded in lowering long-term borrowing rates, its effect on the real economy is less certain. 6 For another thing, such policies may have important side-effects: they may lead to additional risktaking in financial markets and thus contribute to financial instability, 7 and they can create spillover effects to the rest of the world – notably emerging markets, where capital flows in search of higher yield can fuel asset prices and currency movements. 8 A complete assessment of the positive and negative effects of these measures will thus have to wait until we have data on the full experience, that is, until the complete exit from these policies. An assessment of the effectiveness of the SNB’s minimum exchange rate is clearer: this measure has played a decisive role in addressing the imminent risk of deflationary developments and has thus been successful. Given the still weak economic environment, it remains the central tool to ensure that monetary conditions are appropriate and that the SNB’s primary objective of price stability is fulfilled. The period since the collapse of Lehman Brothers has also underlined the value of central banks being able to respond flexibly to unexpected circumstances. On 30 November, the Swiss electorate will vote on the so-called “gold initiative” (“Save our Swiss gold”, in full), which, paradoxically, would severely constrain the SNB’s room for manoeuvre in a future crisis. Let me digress for a few minutes to explain why the SNB is opposed to this initiative.
The Financial Supervisory Authority was granted broad-based powers to intervene in failing institutions, and the Government was authorised to inject capital into new domestic banks. This so-called Emergency Act thus allowed new domestic banks to be created when the old cross-border banks failed and were placed in special resolution regimes followed by winding-up proceedings. The new banking system amounted to around 1.7 times GDP, compared to 10 for the old banking system. As a result of these measures, the domestic payment system functioned more or less seamlessly throughout, and customers had continuous access to their deposits. I have expanded at some length on the measures taken when the banks failed, as there are still a number of misconceptions about the process in international discussions. There have been claims that Iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. The fact is that Iceland kept the domestic part of the banking system running throughout; otherwise, the consequences would have been dire. Some have claimed that the banks were nationalised. They were not. The old banks are private companies. They are in winding-up proceedings governed by law; they are not under the control of the Government. The Government has a majority stake in only one of the new banks. Others have claimed that Iceland defaulted and got away with it. The opposite is true. The credit of the sovereign was preserved, and all debt obligations have been paid on time.

BIS central bankers’ speeches  Monetary policy The task of evolving our liquidity insurance framework will not end, but given the substantial reforms made to it over recent years, it is likely that the focus will shift to monetary policy implementation, as and when the MPC decides to move policy away from its current settings. As the head of the Markets Directorate it is not my role to speculate when the policy setting might change, but it is my job to ensure that decisions of the MPC are implemented effectively. That involves, in particular, ensuring that we have the tools needed for effective monetary control; that is, keeping overnight market interest rates in line with Bank Rate. The Bank’s current approach is to pay Bank Rate on the full balances held in reserves accounts. This is known as the “floor” system. As set out in the SMF Annual Report, this approach remained successful at keeping sterling overnight market rates close to Bank Rate during 2014–15, with the “wedge” between policy rates and market rates relatively small over the past year. But over the year, activity in the sterling money markets remained low as the floor system, alongside a large-scale injection of reserves through QE, reduced the need for banks to transact in money markets. In the near-term, I expect that this system will remain effective at moving market rates in line with any change made to policy rates by the MPC.