samchain/econo-pairs-v1 huggingface dataset:
There may therefore be a relationship between the decline in the correlation between equities and bonds and the low term premiums now observed in the bond market. The previous decision to change the equity share was based on the assumption of a correlation between equity and bond returns of about 0.4. Over the past decade, this correlation has averaged –0.3. In Norges Bank’s opinion, it is not unreasonable to base our advice on a lower correlation than the last time we issued advice. With a lower correlation, the fund will need a lower bond allocation than previously assumed in order to maintain return volatility at about the same level. RISK OF SUBSTANTIAL AND PERSISTENT DECLINES IN VALUE So far, my discussion of risk has focused on the fund’s expected return volatility from one year to the next. If returns are normally distributed, a standard deviation of 10 percent means, in slightly simplified terms, that the value of the fund, at its current size, will change by more than NOK 700 billion in one out of every three years and by more than NOK 1400 billion in one out of every twenty years. Even these enormous amounts may underestimate actual risk. Financial market returns do not follow a normal distribution. Major financial crises occur more frequently and with greater severity than implied by a normal distribution. An example from the recent past is 2008, when the value of the fund’s strategic benchmark index for equities fell by almost 40 percent.

When the fiscal rule was introduced, the expected return was estimated at 4 percent. The estimates presented today entail a considerably lower expected rate of return for any realistic equity allocation. As mentioned, with an equity allocation of 75 percent, the expected annual real return will be about 2.5 percent per year over the next ten years. Chart: Petroleum revenue spending over the budget Another important objective of the GPFG and the fiscal rule is to insulate the budget from sharp fluctuations in oil revenues. The GPFG is now so large and finances such a sizeable share of government spending that it may become just as important to manage swings in the fund’s value as swings in petroleum revenues. The fiscal authorities face an important trade-off: on the one hand, closely linking fiscal policy to changes in the value of the GPFG will have a substantial impact on other government spending and revenues from one year to another. This is far from desirable. On the other hand, a substantial degree of decoupling between changes in the GPFG’s value and government spending of its funds over the budget could lead to greater uncertainty about the value of the GPFG in the longer term. Oil revenue spending should be based on a realistic estimate of expected return. At the same time, due consideration must be given to return uncertainty. It may therefore be wise to consider spending somewhat less than the expected return over time.
Otherwise there is a risk of further differences between those who have skills that benefit from the new technology and those who are replaced. How long these differences prevail will depend on how quickly people with outdated skills can adopt new skills, change their way of thinking and benefit from the new conditions. But, as I said, this isn't really anything new. As we saw earlier, the agricultural society was replaced by an industrial society that has been replaced by a services society. The number of jobs has not declined and GDP per capita shows a rising trend. But we need to also see the human fates beneath the statistical surface. The fact that welfare is increasing on a general level does not mean that the changes are being made without any frictions at individual level. The effects of technological advances may be different from before An important difference between the current technological developments and the previous revolutions is that the new economy requires increasing elements of purely human traits. Muscle power was needed in both agriculture and the manufacturing industry. Both sectors had many routine and relatively simple work tasks. But in the new economy creativity, inventiveness and the “human touch” are considered important. These are abilities that often require adaptation to the situation, they are difficult to teach and therefore difficult to copy, even with new technology. The new skills we need to acquire make high demands of our educational systems and of skills development in companies and in the public sector.

If we look at Sweden, productivity growth in the business sector has been very weak since 2006, a year or so before the global financial crisis occurred. We have often had to revise down our productivity forecasts as a result of the surprisingly weak development. Productivity has also shown weak development in other developed countries recently, which indicates that it is the result of a joint trend. There are many possible explanations for the decline. Some economists, such as Robert Gordon, say we are in a period of very low productivity growth that will be the new normal for a rather long time. According to this point of view, a large share of the fruits of digitalisation have already been harvested. As early as 2005, for instance, several economies had adapted their business methods and models  3  Roine (2016). 2 [12]  to the internet.
Under the French presidency, the G20 has been at least as active as the Fund. Of particular relevance is the steady implementation of the Mutual Assessment Process, a new instrument for multilateral cooperation and oversight aimed at promoting economic adjustments worldwide. We will have the privilege of hearing from Minister Lagarde about this important endeavour later during lunch. In today’s conference, we would like to advance from diagnosis to treatment. Last year, the main focus was on the sources of instability and the inadequate asymmetric adjustment mechanisms of the current system. This year, the aim is to progress towards a common  BIS central bankers’ speeches  1  understanding of the role of the Fund and to discuss concrete reform proposals. In doing this, it is important that we stay focused and realistic. The two main tasks of the IMF are crisis prevention and crisis resolution. The main Fund policies for achieving these tasks are surveillance and financial support. Before leaving the floor to our panellists, allow me to reflect very briefly on these two topics. The IMF is mandated to oversee the international monetary system and monitor the economic and financial policies of its member countries. In this way, it helps to ensure the effective operation of the international monetary system, thereby promoting and sustaining sound economic growth. In recent years, much has been done to make surveillance more focused and effective. Attempts to better integrate financial sector issues and spillover effects are all steps in the right direction.

Withdrawals from the fund at 4 per cent can therefore finance 15 per cent of public spending in 10 years’ time. This can continue on a permanent basis without reducing the capital in the fund. The fund will therefore lead to smaller cuts in government welfare spending than would have been the case without the fund as the costs related to the ageing of the population have an impact on government budgets. The actual building up of the fund may span a short generation. A fund with investment abroad enables Norway to separate the revenues generated by oil and gas production from petroleum revenue spending. An alternative could have been to regulate the production rate, keeping our wealth under the sea bed for a longer period, as was attempted in the 1970s when the production ceiling was set at 90 million standard cubic metres per year. Oil companies currently produce 240 million standard cubic metres per year. The fund acts as a buffer between widely fluctuating oil revenues and domestic expenditure. The annual spending decision can be made independently of the size of the revenues. Thus, the fluctuations in government oil revenues do not have an automatic impact on the Norwegian economy. The fund also has a stabilising effect on the krone exchange rate as capital outflows increase when Norway’s petroleum revenues rise. As a savings plan, the fund enables petroleum revenues to be used by not only the current generation but also future generations. The fiscal rule ensures that this is the case.
Luis M Linde: The European and Spanish economic situation Opening address by Mr Luis M Linde, Governor of the Bank of Spain, at the Annual Economists’ Forum/Consejo General de Economistas, Madrid, 29 May 2014. *  *  *  I much appreciate the invitation to participate in this forum and the opportunity to share with you some brief thoughts on the European and Spanish economic situation. Following six quarters of negative growth, the euro area economy initiated a mild recovery in 2013 which has since continued. The recovery is essentially being underpinned by the gradual pick-up in domestic demand, after the strong adjustment it underwent during the recession. However, the latest GDP growth figure, for the first quarter of this year, illustrates the stillfragile and uneven nature of this economic improvement in the euro area. According to the provisional estimate released by Eurostat, the increase in activity in the euro area as a whole in 2014 Q1 was 0.2% in quarter-on-quarter terms, below most analysts’ expectations. Note that this rate has been affected by exceptional temporary factors in some countries. In any event, the mixed nature of the recovery is evident if we compare the strong momentum the German economy is providing to the area as a whole with the behaviour of activity in other countries such as France, where it is practically flat, or others still such as Italy, the Netherlands, Portugal and Finland, where negative figures have been posted.

The survival of the national currency and its acceptability to the public will continue to depend on the central bank carrying out a responsible monetary policy which protects the value of the currency. Discharge of this duty should not be materially affected or impeded by technological developments in payment methods. The central bank’s ability to influence interest rates or the exchange rate through its market operations will not be diminished. I conclude that, all in all, there are few concerns for the central bank in its monetary policy role that arise from the development of e-commerce; where there is an impact it is likely to be gradual and central banks should be able to adapt to it as readily as they have to other structural changes in the financial sector over the years. For the reasons discussed earlier, however, the challenge to the banking regulatory side of the central bank is likely to be rather greater. BIS Review 28/2000  4
My view is that we should further study how PLT frameworks might work in practice. 15 But, it is possible that a simpler approach of committing to keeping the average inflation rate around 2 percent over the medium term might be just as appealing. It might be sufficient to better anchor inflation expectations while avoiding the communication challenges and complexity of an asymmetric PLT regime. In this vein, I also would evaluate whether the inflation goal should be recast as a range of, perhaps, 1½ to 2½ percent, from the current 2 percent objective. A range might have several advantages over a point target. First, it might be viewed as more realistic given that measured inflation will always randomly fluctuate relative to its underlying trend. That is to say, even if the FOMC performs its job exceedingly well, very rarely will the inflation rate, as measured by the PCE price index, be precisely at 2 percent. Second, having a relatively narrow range would send a message that the FOMC is discriminating between two regimes—one in which inflation is within the range and concerns about inflation are low, versus another in which inflation is outside the range and concerns about inflation are more elevated. Even so, I would not recommend shifting to such a range currently. I would only consider doing so once the FOMC has successfully and sustainably pushed inflation back to its 2 percent objective.

2  Defining dependence as the percentage of natural capital in total capital (i.e., natural, physical, and human) and abundance as the amount of per capita commodity exports in 1970. 2  BIS Review 106/2009  on comparative advantages, but it also induces better practices and technologies, as well as more competition in the markets, all factors that enhance economic growth. On the other hand, we know that Chile is rich in natural resources, especially mining ores, but our dependence on them is ever smaller. Actually, mining exports contribute every year a large amount of resources to the country, but their share of total exports has steadily declined over time, with the exception of the last few years due to the soaring price of copper (figure 3). Another critical element mentioned in the literature, that for Chile is a strong one, is the quality of its institutions. Sound institutions, including fiscal discipline, have prevented the “voracity” effects. A well educated labor force and full access to international capital markets have kept investments in other activities free of barriers, and the real exchange rate, although widely fluctuating, has not been detrimental to the development of the exporting sector. By way of example, and to see the good position we are in now as compared with previous years, let us recall what happened with nitrate.
There are several reasons why payment costs are low in Norway. New technology resulted in an early introduction in Norway of cost-efficient electronic systems. Banks led with new solutions, and the public adopted them quickly. Banks have collaborated on both the establishment and the operation of new services. The resulting economies of scale made it possible to keep costs low. Norwegian and Nordic banks are at the forefront of developments in this area. Norway is among the world leaders in the use of payment cards. Eight out of ten card transactions take place using BankAxept, one of the solutions that banks have developed. According to Norges Bank’s estimates, the social cost of using BankAxept is around NOK 3 per payment. By comparison, payments using international payment cards cost society NOK 13, or four times as much. Credit card use is increasing. It is the point of sale, typically a shop, which pays the costs connected with use, and not the cardholder. While the merchant pays around NOK 0.10 when the customer uses BankAxept, the merchant must usually pay between 1 and  3  2  See Norges Bank Papers 5/2014. BIS central bankers’ speeches  2 percent of the purchase amount when the customer chooses Visa or MasterCard. Merchants are free to pass on this cost to card users, but this seldom happens in Norway. Customers are thus not charged correct prices when given a choice of payment solution.

Meanwhile, in the words of the Socrates, the Greek philosopher, “all wars are fought for money”. We heard some good examples that illustrate this relation in last year’s conference. We heard from Prof. Picard about King Monunius, who is known thanks to the respective coin. He had it minted for the sole purpose of raising a strong army, convinced that his might rested with the army. From Prof. Egro, we learned that Mahmut Pashë Bushatlliu and Ali Pashë Tepelena tried to introduce their coins and banknotes, independently from the Ottoman Empire, not for financial purposes but as a token of rebellion or an attempt to break away from the Empire. Later on, in WW1, we see the banknotes of the Republic of Korça, which are a rare phenomenon not only in terms of numismatics, but also a materialisation of the early issues as a result of the war, after the formation of the Albanian state. During WW2, the Albanian currency underwent radical changes. On its obverse and reverse we no longer see King Zog. Instead, Victor Emanuel III is featured and the most significant change is that the Albanian franc was officially pegged to the fate of the Italian lira. We will have the opportunity to hear, during the day, other interesting and important examples in the monetary and economic history of Albania.
The notion that government ought to intervene in a market economy in order to rectify imbalances permeated economic policy for many years. Diminishing confidence in the new approach Keynesianism and its analytical methods spread rapidly. Economists in the 1950s and 1960s devoted a lot of time to computing the multiplier effects of various government measures. For a time it looked as though the economy could be steered by pulling different levers and thereby overcoming the problem of a market economy’s instability. The Phillips curve, presented in the late 1950s, demonstrated a negative relationship between nominal wages and unemployment. This further boosted the belief that the economy could be adjusted at will, leaving politicians to opt for their preferred combination of unemployment and inflation. The significance for growth of a fixed value of money fell into oblivion. In the 1950s and 1960s, Keynesian stabilisation policy seemed to be successful in many countries, not least Sweden. Economic growth was high, supported for example by the post-war reconstruction of Europe, and it was also stable, with only small cyclical fluctuations. Growing budget deficits were  2  Berg, C & Jonung, L (1999), Pioneering price level targeting: the Swedish experience 1931–1937. J of Monetary Economics, 43:3. 2  BIS Review 81/2001  tolerated during downward phases but it then proved increasingly difficult for governments to balance the budget over the business cycle. In the early 1970s, the collapse of the Bretton Woods system for international exchange rate cooperation meant that the earlier constraints on economic policy no longer applied.

Despite all the European convergence and integration, financial systems in different EU member states still look and work very differently. Trying to administer them from a single centre according to a single set of rules might be like trying, say, to feed all the animals in a zoo with a single type of food. As an illustration: the recent ECFIN Retail Banking Survey says:   in Austria almost 100% of house purchasing loans feature variable interest rates, while in France the share is only about 10%.   countries differ substantially in the share of owner-occupied housing and therefore in the importance of the mortgage market;    they differ in how intensively they use electronic means of payment;    in the significance of building societies and credit unions;    in tax and other incentives that the government provides for certain types of financial transactions;    in the extent to which local banks trade in various non-plain vanilla products such as derivatives;    in the share of subsidiaries and branches of foreign financial institutions and, more generally, in ownership structure    in the loan-to-deposit ratio, which varies from roughly 70% in some countries to more than 200% in others;    in the degree of local market concentration;  etc. There are many more examples, some of them influenced by long-term developments, some by entrenched behavioural differences and habits.
Growth remains high in China. Growth among trading partners is expected to slow this year. In the years ahead, we expect that growth will be relatively stable. Uncertainties that may contribute to weaker developments include high oil prices and the possibility of weaker housing markets in a number of countries. On the other hand, solid business sector profitability in many countries may result in stronger investment growth than assumed. The outlook for growth in different regions indicates that the imbalances in the global economy, with a large deficit in the US and large surpluses in a number of other countries, will persist. Low growth in the euro area and Japan is weakening the prospect of a gradual correction. This increases the risk associated with these imbalances. Increased imbalances in addition to high oil prices and volatile oil markets are contributing to the uncertainty surrounding developments in the global economy. There are particularly large imbalances both in the US balance of trade and current account. This is partly due to the federal budget deficit. Moreover, US households have a high level of consumption and a low level of saving. Strong demand in the US has sustained growth in the world economy. The deficit in the US is offset by surpluses in Europe and Asia. Persistent deficits have pushed up US foreign debt to a high level. The US population is growing faster than that of other OECD countries.

We can, therefore, safely affirm that the fiscal rule has been normative for fiscal policy. The new guidelines have changed the interaction between the different components of economic policy. Monetary policy has been given a clearer role in stabilising economic developments. A clear monetary policy objective is a necessary complement to the fiscal rule for ensuring reasonable macroeconomic stability. The operational target of monetary policy as defined by the Government is inflation of close to 2½ per cent over time. The inflation target provides an anchor for economic agents’ choices concerning saving, investment, budgets and wages. Households, businesses, public entities, employees and employers can base decisions on the assumption that inflation in Norway will be 2½ per cent over time. High oil prices have a different impact in Norway than in oil-importing countries. When oil prices increase, the value of Norway’s national wealth rises. The idea behind the Petroleum Fund is that the cash flow from an increase in oil prices should accrue to the Fund and be invested abroad and should not be included directly in the government budget. As a result, the increase in the cash flow will not immediately affect the domestic economy. The effect of higher oil prices will gradually be seen when the real return on the Fund measured in NOK increases. Thus, the government authorities will be able to budget a higher deficit in the years ahead.