samchain/econo-pairs-v1 huggingface dataset:
There were reports of defaults on mortgage loans, but it was generally believed that the loans at risk were confined to a small segment of the market. The first warning of more severe problems came in winter last year. In the course of summer, it became clear that the losses had spread, and in the first instance to state-owned German banks. Other banks, funds and financial establishments in Europe, Asia and the US also felt the turbulence and gradually losses emerged where we perhaps least expected them. A European colleague compared the financial turbulence to a film production: It was shot in the US, premiered in Germany and is now playing all over the world. As you know, it also came to small-town cinemas in Norway last autumn. In addition to German banks, a small Danish bank and a fairly large British mortgage bank were faced with serious problems. At St James’ Park in Newcastle, advertisements for the crisis-hit British bank Northern Rock shine towards us. We are indeed witnessing crises at banks in neighbouring countries. 1  Yngvar Ustvedt (1994) “Henrik Wergeland – En Biografi”, Gyldendal Norsk Forlag A/S. 2  Source: www.dokpro.uio.no. Text from “Henrik Wergeland – Samlede skrifter”, ed. Herman Jæger, Didrik Arup Seip, Halvdan Koht and Einar Høigård, published by Steenske Publishers, 1918-1940. Poem translated by Anne Born, published in "The Army of Truth", The University of Wisconsin Press. BIS Review 18/2008  1  The turmoil spread to money and credit markets in August.

To sustain employment and productive capacity through the virus disruption, wages, leases, interest, invoices and fixed costs need to continue to be paid even as revenues collapse. Many long-term viable businesses will face cash-flow shortfalls that, unless they can be bridged, will result in redundancies, business closures and scrapping of productive assets. Signs of that are already evident. In scale, such upheaval could tear the muscle of the economy in a way that would be difficult to put back together. The scars could damage the economy’s performance for a long time to come.1 To scale the issue, we identified in May that 60% of the 85,000 biggest businesses operating in the UK – businesses accounting for an estimated 75% of turnover in the economy – will face a cash-flow deficit this year if they want to maintain productive capacity.2 [See slide 2 of accompanying deck]  Policy measures have therefore been directed towards mitigating and financing these deficits. On the monetary front, Bank rate has been cut to just 0.1%, and a programme of £ of asset purchases is underway, helping to support business cash flow by lowering the cost of servicing debts, as well as providing a stimulus to spending more broadly. The fiscal policy response has been substantial. The Coronavirus Job Retention Scheme, paying 80% of the wages of furloughed employees up to £ has helped to minimise corporate cash-flow deficits and maintain jobs.
And when it became apparent that the official bilateral financing was in practise available only as the very last resort we had to turn to the commercial bank lenders in the major creditor countries and persuade them to extend the maturity of their loans. It was a dangerous moment. But their constructive response went a long way to resolving the immediate crisis and helped to restore greater financial stability to the region as a whole. The creditor banks are also now in negotiation with Indonesia’s commercial debtors. The discussion in Washington turned to preventative measures for the future. It would have been understandable in the light of the Asian experience if there had been some turning back from the path towards greater freedom of international capital movements, and there was some suggestion of this. But on the whole the long term benefits of free capital flows were upheld, and the mood was to continue cautiously down that path, but to emphasise the need, not only for sound macro-economic policies which everyone accepts as a sine qua non, but also for steps to accompany capital account liberalisation designed to reduce the risks of volatility. These related in part to the process of capital account liberalisation, where there was a good deal of stress on ‘sequencing’ - that is on liberalising potentially more stable, longer-term, capital inflows initially, rather than short-term borrowing. But they related particularly to three key conditions for living with freedom of capital movements. The first was “transparency”.

There were certainly adjustments to macro-economic policy that needed to be made - a more flexible exchange rate regime in some cases, for example, or a somewhat tighter overall macro-economic stance, with perhaps some adjustment between fiscal and monetary policy. And, once the capital outflow had started, macro-economic adjustment had to be harsher than might otherwise have been necessary, in order to re-establish confidence. But there are real dangers in extreme market movements or in excessively severe macro-economic adjustment to contain them. That could cause a vicious circle of domestic default and systemic financial weakness in the affected country. And that could have seriously adverse implications - in terms of both financial and economic knock-on-effects - for the global economy. That, essentially, is why it may be in the self-interest of the international community to attempt to mitigate the market and macro-economic adjustment pressures by providing financial support. It is why the international community responded to the crisis in Asia by promptly offering very large amounts of official assistance - $ billion in the case of Thailand, $ billion for Indonesia and $ billion for South Korea. But such official financial help cannot be unlimited and it cannot be provided without strings. It, too, has real dangers. If it were too readily forthcoming it could encourage “moral hazard”, especially by encouraging commercial lenders - particularly foreign currency creditors - in the belief that they will be bailed out if things go wrong.
I want to share with you this assessment, which can be summarized in three main points. First, economic recovery in the first half of this year is firm, and the momentum is likely to continue in the second half, supported by global economic recovery, accommodative fiscal and monetary policies, as well as the strong momentum of recovery itself. As for the impact of the political turmoil, April and May data clearly suggests that the impact is limited and the collateral consequences will be felt largely in the tourism sector which will take a bit longer to recover. For the whole of this year, we are expecting growth to be higher than the range of 4.3–5.8 percent that we had forecasted earlier in April. So, similar to other economies in the  BIS Review 101/2010  1  region, Thailand should recover firmly this year, and the recovery momentum should carry forward into the next year. Second, with the economy recovering well, inflationary pressure is set to increase going forward, reflecting the impact of stronger domestic spending and also higher commodity and raw material prices in global markets. Also, going forward, pressure on asset prices will become more evident on account of continued capital inflows into the region. Therefore, with pressure on prices edging up and the recovery momentum looking firm, the move to begin policy rate normalization is a logical one for maintaining economic and financial stability. So, the decision today is not a surprise for financial markets, rather it is a decision that is longoverdue.

This seemingly straightforward question actually embeds a good deal of ambiguity and room for potentially manipulative actions. First, it is a hypothetical question – not what rate did you borrow at that morning, but what rate do you think you could borrow at. This potential disconnect from actual borrowing activity builds in from the beginning a certain amount of judgment and room for manipulation. Second, some of the parameters – “reasonable market size” or “just prior to 11 a.m.” – also allow for subjective interpretation. This type of judgment is not inherently a problem, but it does open the door for improper behavior and also makes transgressions more difficult to identify. At the same time, and partly in response to the lessons learned during the financial crisis, patterns of bank funding began to shift away from unsecured funding to secured funding markets. Investors and other market participants grew to prefer holding specific collateral against their loans – even very short-term loans – than just trusting in the ongoing viability of the borrower. This shift had substantive implications for money markets and the LIBOR fixing model, which was based on the assumption that there would always be regular activity in unsecured interbank funding markets. As those markets dried up – in some cases there were essentially no transactions for longer-dated tenors – it became harder for banks to ground their LIBOR submissions in actual, observable transactions. This put a greater premium on a submitter’s judgment, which increased the risk of further abuse and manipulation.
In practice, only a small number of central banks can draw on a sustained history of successful monetary policy, amongst them, the Federal Reserve, the Bundesbank and the Swiss National Bank. Fortunately, in recent years, an increasing number of central banks are rapidly accruing credibility in that painstaking process referred to by Alan Blinder. 6 When we think about expectations, transparency and credibility in the context of monetary policy, it is important to remember that they cannot and should not be substitutes for action. It is often said that a  4  See for example McKinsey (2005), where it is shown that the ratio of the global financial stock (including equity, debt securities and deposits, but excluding real estate) was roughly three times the size of world GDP in 2003, while it was about equal to world GDP in 1980. 5  The growing importance of balance sheet considerations in monetary policy was noted by Alan Greenspan in his reflections on central banking at the Jackson Hole Symposium 2005. "In particular, our analysis of economic developments almost surely will need to deal in greater detail with balance sheet considerations than was the case in the earlier decades of the postwar period. The determination of global economic activity in recent years has been influenced importantly by capital gains on various types of assets, and the liabilities that finance them. Our forecasts and hence policy are becoming increasingly driven by asset price changes."

Interest rates which determine savings and investment decisions and therefore have a stronger impact on the economy typically have longer maturities. In order to impact the economy, monetary policy impulses must therefore first be transmitted from the money market to the capital market. The money market and the capital market are linked by expectations. Neglecting transaction costs and risk premiums, the expectations theory of the term structure views the long-term interest rate as an average of the shortterm interest rates expected to prevail until the maturity of the respective bond. Although current shortterm interest rates have some effect on longer-term bond yields, the expectations theory of the term structure tells us that it is primarily expected future short-term interest rates which determine bond yields. In practice, due to uncertainty about the future evolution of short-term interest rates and due to time-varying risk premiums, the longer the maturity, the weaker the link between current short-term rates and long-term rates. Therefore, in practice, a central bank would often find it difficult to guide longer-term interest rates to a level commensurate with what it considers to be the optimal monetary policy stance. Assuming a flexible exchange rate regime, the exchange rate is arguably the quickest transmission channel for monetary policy, particularly in open economies. Exchange rate movements rapidly affect prices (via import prices) and subsequently demand (by boosting imports and slowing down exports, or vice versa). In theory, monetary policy impacts exchange rates via the yield curve and from there via interest rate parity relations.
1 Second, there could be situations where the no bail-out clause might not be entirely credible, given that serious budgetary deviations in one country could generate economic and financial instability across the EMU as a whole, which would end up compelling the latter to bail-out countries in difficulties. Such constraints required implementing additional common rules. Thus, the Treaty stipulated that Member States should avoid excessive deficits and that the European Commission should monitor public finances to identify significant deviations (or, in the language of the Treaty, “gross errors”) that could endanger the macroeconomic and financial stability of the monetary union. 1  Aizenman, J., M. Hutchison, and Y. Jinjarak. (2013). “What is the risk of European sovereign debt defaults? Fiscal space, CDS spreads and market pricing of risk”. Journal of International Money and Finance, 34, 37-59. 2  In practice, the SGP implemented these principles through two well-known reference values: 60% for the ratio of government debt to GDP and 3% for the budget deficit-to-GDP ratio. Non-compliant countries entered the corrective arm, which ensured that excessive deficits were corrected in a given period of time. Compliant countries functioned under the preventive arm, which required convergence to medium-term budgetary objectives. Shortcomings of the current fiscal governance framework Thus, the institutional approach to fiscal policies in the EMU rested on the assumption that supranational constraints would yield national budgetary policies consistent with the smooth functioning of the monetary union.

3  See, for example, Joseph Gagnon, Matthew Raskin, Julie Remache, and Brian Sack, “Large-Scale Asset Purchases by the Federal Reserve: Did They Work?” Federal Reserve Bank of New York Staff Report no. 441, March 2010. Several private-sector firms have estimated yield effects of similar magnitude. In addition, a working paper by James Hamilton and Jing Wu, “The Effectiveness of Alternative Monetary Policy Tools in a Zero Lower Bound Environment,” finds that changes in the Federal Reserve’s asset holdings produce considerable yield effects. 2  BIS Review 128/2010  Under this view, the FOMC’s influence on financial conditions is associated with the size and composition of its securities portfolio. This perspective provides a clear rationale for the reinvestment decision made at the August FOMC meeting. The decline in the size of the Federal Reserve’s portfolio that would have occurred in the absence of the reinvestment program would have amounted to a passive tightening in the stance of monetary policy, as the portfolio balance effect would have gradually reversed. Moreover, the extent of this tightening was increasing in response to the weakening of the economy, as lower longerterm yields were leading to more rapid repayment of MBS. This perverse effect was seen by the FOMC as working against its efforts to reach its dual mandate. In effect, the policy approach that was implemented before the August meeting acted to mute the amplitude of movements in longer-term interest rates.
Threats to financial stability in the current environment Having described the potential costs of financial crisis and why financial stability matters, I want to turn to my second question, why it matters now. By this I do not mean that we have detected any unusually marked amount of stress or weakness in the financial system. Indeed, I cannot resist at this point expressing some thankfulness that we are managing to hold this discussion in relatively calm times (although this is the sort of comment that might be better saved for the closing address at a conference rather than the opening one). The last international conference the Bank sponsored on a financial stability topic, back in September 1998, followed closely on considerable turbulence in global bond markets and in fact managed to coincide with the incipient collapse of LTCM. As we found out shortly afterwards, we were lucky to have any American colleagues at all at that event! Rather, I mean that the financial system, and in particular the banking system, is undergoing substantial change, both in its external environment and in the way it manages its risks and is regulated. Globalisation, consolidation, conglomeration within and across sectors, technological change: these are not new developments, but they are continuing and intensifying. These developments present new opportunities to banks, as financial markets open up and mature. But they also present challenges.

4) The Norwegian economy at a turning point The Norwegian economy continued to expand at a relatively strong pace in 1998, albeit somewhat more moderately than in previous years. In Norges Bank’s December Inflation Report, the central bank projected a period of slower growth. Several years of robust growth have contributed to high capacity utilisation. Labour shortages and high wage growth will have a dampening impact on growth in the years ahead. Forecasting is a challenging enterprise at a stage when the economy is nearing a turnaround. It is difficult to pinpoint the timing and the amplitude of the turnaround. However, evidence now suggests that Norway is entering a period of slightly weaker growth. The international environment has led to slower growth in demand and lower prices on the world market. This is weakening profitability in the export sector in Norway. In addition, the wage settlements have increased business costs, which will increase the need for enhancing the efficiency of enterprises. Reduced earnings and higher interest rates will have a dampening effect on business investment. The extraordinarily high level of oil investment recorded in recent years has been expected to fall for some time. The drop in oil prices may lead to more pronounced cyclical fluctuations. Restructuring, streamlining and cost cuts in the oil industry will also affect employment. The local government sector, where employment has increased sharply during this cyclical upturn, placed itself in a very difficult situation during the last income settlement.
Lively discussions after publication of the interest rate path There have been lively discussions on both occasions when the Riksbank has published an interest rate path. It is good that our forecasts and assessments are discussed. The fact that the Riksbank gives its view of the interest rate over a longer time span encourages this – the longer the time perspective, the greater the scope for differences in assessments. But the discussion that has arisen has often not taken this direction; instead it has focussed on market agents having been taken by surprise by the Riksbank. This is, of course, not the desired effect. The Riksbank aims to be predictable and from this aspect the experiences so far of publishing our own interest rate forecast have been not only positive. My view is that we are at the beginning of a joint learning process. It is unusual for the Riksbank to communicate its own interest rate path and it is unusual for market agents to relate to it. This is something that both parties will become better at as our experience in this field increases. We can also make some comparisons with when the Riksbank began to publish its inflation forecast. When the forecast was changed this sometimes led to a debate. BIS Review 111/2007  3  But after a time, everyone became used to the idea that the inflation path would be revised, and it will probably be the same case with the interest rate path.

So despite the market analysts’ own interest rate expectations being in line with the Riksbank’s published interest rate path for the coming six months and higher further ahead, they were surprised by the Riksbank’s upward revision of the interest rate path. One might ask why market agents’ expectations of the Riksbank’s interest rate path differed from their own forecasts for the repo rate. One interpretation is that they believed they had weighed together information on inflationary pressures in the economy in a different way than the Riksbank. This is nothing strange in itself. Assessing economic developments is not an exact science and different forecasters may very well draw different conclusions regarding the underlying inflationary pressure in the economy. But what surprises me, if this is the  4  BIS Review 111/2007  correct interpretation, is that the market nevertheless reacted so strongly to the assessment we made in June. Another interpretation might be that some analysts thought the Riksbank’s assessment of inflation prospects and interest rate development did not differ significantly from their own assessments, but that the Riksbank did not want to revise the interest rate forecast made in February by that much, for reasons of prestige. I do not know whether this could have been part of the explanation, but I believe and hope that it was not. We Executive Board members have always been careful to point out that the interest rate path we publish is a forecast, and like other forecasts is reconsidered each time we make a decision.