samchain/econo-pairs-v1 huggingface dataset:
2  BIS Review 2/2003  markets enhance the ability to manage and trade risk, they are at the heart of modern finance and the backbone of financial innovation. Their development has enabled market participants to hedge risk, develop arbitrage, and, therefore, enhance the efficiency of price setting in financial markets. Of course, the other side of the coin is that derivatives are sometimes criticised as they may be regarded under some circumstances as a potential threat to financial stability. I will come back to this point later on. The elimination of currency risk within the euro area has also had far-reaching effects on the equity markets. This is crystal clear when observing volatility patterns and portfolio allocation methods. As regards volatility patterns, recent developments seem consistent with the predictions of economic theory, where stock prices should reflect expectations of future dividends, interest rates and risk premia. It follows that the introduction of the euro should be associated with a reduction in differences 7 in volatility across markets. Indeed, a recent empirical study demonstrates that those countries whose stock exchanges had a structural high or medium volatility regime, converged towards those with a low volatility regime. From the point of view of the European stock market as a whole, this shows an improvement in global efficiency. As regards investment patterns, sector-diversification strategies have been defined as an alternative to country diversification.

Before EMU, it was common practice for institutional investors to make geographical diversification their first priority, and, secondly, to select securities in accordance with a sectoral diversification pattern. There is some evidence that the “home bias” has weakened since the introduction of the euro. For instance, assets held by pan-European investment funds represented 8 25% of total assets at the end of 2000, up from 12% in 1998. The development of a genuine panEuropean approach is also illustrated by the introduction of various European stock indexes. The turnover on options based on these indexes - for instance, the volume of options traded on the Eurostoxx50 contract - now matches the turnover of options based on well-established domestic indexes such as the CAC in France. This provides evidence that large investors are looking for - and actually have recourse to - hedging products that are suited to a cross-border oriented strategy. However, this evidence of a strong impetus towards integration does not necessarily support the argument that a brand new asset allocation is overwhelmingly dominant. Let me emphasise two aspects. First, pan-European sectoral strategies have also embraced non-euro area stocks in order to reach an appropriate level of diversification. This is the case in sectors such as pharmaceuticals, or telecom equipment, with stocks listed in non-euro area countries such as Switzerland, the United Kingdom and Sweden. This is in line with some theoretical assumptions, which are stating that currency risk is outweighed by the risk-return parameters, as far as investing in equities is concerned.
Therefore, I would like to reiterate my appeal for finding a political consensus that would enable the establishment of a fiscal rule, which serves the maintaining of long-term sustainability of public finances and investors’ confidence in the Albanian economy. Third, the reform of social and health insurance systems is another important aspect that remains problematic for the long-term stability of the country. Deficits resulting from them are upward and may substantially affect fiscal parameters in the future. This reform should open the way to development of relatively backward segments of the financial system, those of private pension and insurance funds. This would really contribute to expanding and deepening the financial market in Albania. Fourth, sticking to financial stability, I would like to bring to your attention the changes in the code of civil procedure relating to easing of collateral execution. Further to the package launched recently by the Bank of Albania and the letter I sent a few days ago to the major parties in the Assembly, I would appeal once more for their approval at an earlier time possible. It is a set of proposals that we and international experts regard indispensable for the stability of the banking system, guarantee of deposits and recovery of credit to economy. Finally, the long-term development of Albania and the policies and strategies supporting it deserve greater attention. The Bank of Albania remains confident in the long-term development prospects of the country.

The whole our work was supported by qualitatively improved financial literacy of the public, analytical study of several phenomena, matters of interest for the development of the country, and production of financial statistics conform to international standards. Finally, I would like to emphasize that the Bank of Albania has been a serious and important player in Albania’s integration project, completing and updating all its legal responsibilities and institutional commitments. *** Honourable Ladies and Gentlemen, In my speech, I will address the key issues of the Annual Report, focusing on main directions of Bank of Albania’s work over the past year. I will start my speech with our work and results in fulfilling the primary objective: achieving and maintaining price stability. 1. Economic developments, price stability and monetary policy in 2012  As I said in the introduction of my speech, the year 2012 was another difficult year for the Albanian economy. Weaknesses in our financial and trading partners were manifested in a low demand for Albanian exports, tight financing conditions for foreign capital, and elevated uncertainty among economic agents. Also, the public and private sector domestic demand remained weak in the Albanian economy. Besides these factors, two other specific shocks hit the economic activity over the past year. Hence, bad weather in the first quarter was reflected into a sluggish activity in construction and export over the period. The banking system’s response to new and tighter regulatory measures provided by the European Banking Authority (EBA) was the other shock of higher importance and influence.
I therefore should perhaps say a few words on the challenges for Europe’s financial markets that may be posed by the exit of the UK from the European Union. We do not yet know what arrangements will govern the trade of financial services and the integration of financial markets between the UK and the EU once the UK has completed its exit. That will be one of many issues to be determined by governments in negotiations over the coming years. Nor do we know how the financial sector in the UK and elsewhere in Europe will respond to the process and outcome of those negotiations. There are many possible answers to both questions. What I think is clearer is that this is not a zero sum game. 10  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  10  It is certainly possible – indeed some would say likely – that some wholesale financial market activities currently carried out in London and elsewhere in the UK are in future carried out elsewhere in Europe. But as I have discussed earlier this evening, the re-emergence of London as the world’s leading financial centre over the past 50 years, despite the decline in importance of the UK in the world economy, is the product of many factors. It may in part be due to London’s role as Europe’s financial centre.

A message that emerged with great clarity and force from the non-financial sector participants was that there remains a major lack of trust in financial markets and financial institutions because of misconduct. Participants saw cultural and ethical changes as an essential component of restoring the social license for financial markets. The Bank of England is not responsible for market conduct and integrity in the UK. That task rests with the FCA under the very able leadership of my erstwhile colleague Andrew Bailey. But our overall responsibility for the financial stability of the UK, our prudential responsibility for the major wholesale financial firms and the Bank’s close and historic interaction with London as an international financial centre means we have a very active interest in the integrity and fairness of the wholesale financial ecosystem which is located here. That is why the Bank, alongside colleagues from the FCA and HMT, led the fair and effective markets review which reported last year and why we have made significant progress in ensuring that its recommendations are implemented. 8  7  See ‘From ‘ethical drift’ to ‘ethical lift’: Reversing the tide of misconduct on global financial markets’, Remarks given by Minouche Shafik, 20 October 2016, available at: www.bankofengland.co.uk/publications/Pages/news/2016/078.aspx.
The strained financial situation in the public sector would seem to indicate weak employment growth for at least the coming year, while the economic upturn will probably only lead to a relatively small increase in employment in the private sector. There is, of course, a risk that the weak labour market will affect households' expectations and consumption propensity; a risk that we pointed out already in December and which may have been reinforced. The higher the rate of unemployment, the more caution households will probably show when purchasing and consuming. This could in turn lead to a risk of lower growth during 2004. All in all, the view of the demand situation in Sweden remains essentially the same as in December; demand will increase and approach the economy's long-term sustainable level. Lower domestic cost pressure The relationship between unit labour costs and inflation is usually fairly clear. Thus, when we made a downward revision to the figures for unit labour costs in December, it was not entirely insignificant for the inflation forecast. The background was primarily the signs we saw of an improvement in productivity growth, combined with a weaker labour market. I shall return to the subject of productivity in more detail in a moment. With regard to wage developments, the wage bargaining rounds are currently a central issue. Their outcome will have great significance for the rate of wage increase and thereby also to a large extent for inflation in coming years.

1  See Rubin, R.E and J. Weisberg, In an Uncertain World: Tough Choices from Wall Street to Washington, New York: Random House, 2003. 2  Lawrence Summers, who was Treasury Secretary towards the end of Clinton's period in office, has even designated criticism of the Federal Reserve by politicians as “a fool's game”, which is at best ineffective and at worst counterproductive. “[I]t does not change short-term interest rates because the Fed does not respond, but it does increase long-term interest rates because the bond market does”. (http://www.ustreas.gov/press/releases/rr2401.htm)  10  BIS Review 9/2004
Not only are production and price developments from one year to the next uncertain in the model, but also the average long-term oil price. The calculations start with today’s oil prices, but many of the resulting price paths are far away from this level. The probability distribution for the oil price that we have used is derived from historical variations. The distribution is highly skewed. The mode is lower than today’s oil prices, but we have also incorporated a substantial probability that the average price in the period 2005-2030 will be very high. Since the oil price and oil production are so uncertain, there will also be substantial uncertainty with regard to the funding of the pension system. It is true that the Petroleum Fund with some degree of likelihood may become sufficiently large to keep tax-funding of pensions at today’s level, measured as a share of national income. On the other hand, it is also highly probable that this will not be the case, and that tax-funded pensions will claim a markedly higher share of national income than at present. Normal prudence implies that we attempt to guard ourselves against the most adverse outcomes. One can find a parallel with the price assumptions applied by oil companies in connection with large investment projects with a long production horizon. Those prices are far lower than today’s spot and futures prices.

A survey of more than 31 European countries also shows that there is a high degree of job satisfaction among Norwegians.17 Demographic developments will have a dampening impact on demand for public services and social security disbursements over the coming years. The number of elderly among pensioners, i.e. 80 years and older, will not grow and the post-war generation will only start drawing on social security in the next decade. There will still be pressures for higher public spending. Demand for services we have chosen to let the government provide, for example health services, increases markedly when revenues rise at the pace they are rising today. Growth in government revenues – among others the return on the Government Pension Fund which is rising rapidly – also raises our expectations. At the same time, this is also a period of strong growth in demand for labour in the business sector. With the exception of part-time employees who want to work more, there are now few idle resources in the labour force. We cannot expect a substantial increase in the supply of foreign labour. Workers from other countries, such as Sweden and Poland with families and the largest share of consumption in their home country, have increased production capacity in Norway, but it now appears that the supply of foreign labour is starting to become more limited. Other inward labour migration does not generate higher value added per capita. Immigrants that become permanent residents make the same contribution to increasing demand as to increasing production.
With respect to communication, in recent years the Federal Reserve has shifted towards much greater transparency. This includes quarterly press conferences by the Fed chair following FOMC meetings; publishing growth, inflation and short-term interest rate forecasts of FOMC participants on a quarterly basis; and a concerted effort to lay out the guideposts that the FOMC will look at in assessing progress towards our dual mandate objectives. On the communication front, although we have come a long way, I would admit that there is still room for further improvement. For example, the focus of the SEP on the each participant’s modal forecast does not convey how much uncertainty there is about the economic outlook. Similarly, language used in FOMC statements can become stale over time. We tend to make relatively few changes to the statement language each meeting because of the acute market sensitivity to such changes. One could argue that this might not be the best practice to follow, but we should recognize that there would also be significant transition costs if we were to make more extensive revisions to the statement at each meeting. 6  BIS central bankers’ speeches  For monetary policy to be effective, it is important to have clarity about what the FOMC can be clear and consistent about – its manner of responses to mitigate the potential harmful effects of disturbances and the goals of policy. In contrast, our monetary policy projections and the actions we take cannot be static.

Understanding these interactions is essential in assessing whether inflationary pressures are likely to prove persistent and thus calibrating the appropriate monetary policy response. On the basis of current futures prices, wholesale natural gas prices may stabilise or even fall somewhat in the coming months – indeed, that is precisely what we have seen in recent weeks. This will have a mechanical moderating effect on headline inflation from the middle of next year, as the MPC has anticipated in its latest forecasts. But, to the extent that the level of imported gas prices remains significantly higher than in the past – which is also foreseen in futures markets – then the threat of second round effects that sustain inflation at above target rates may well remain, as domestic firms and households try to resist the squeeze on their real incomes and spending power. That threat will be more acute to the extent that domestic firms and workers seek to protect the real value of their profits and earnings in the face of higher – even if no longer rising – imported energy prices. And – other things equal – the ability to firms and workers to protect their real incomes will be greater when corporate pricing power is stronger and labour markets are tighter.
Number of hits for “financial frictions” in EconLit 100  100  90  90  80  80  70  70  60  60  50  50  40  40  30  30  20  20  10  10  0  0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12  10  BIS central bankers’ speeches  References Banerjee, R., S. Cecchetti and B. Hofmann, (2013), “Flexible inflation targeting: Performance and challenges”, in Reichlin, L. and R. Baldwin, (ed. ), “Is Inflation Targeting Dead? Central Banking After the Crisis”, Centre for Economic Policy Research. Bean, C., (2013), “Nominal income targets: an old wine in a new bottle”, speech at the Institute for Economic Affairs Conference on the State of the Economy, London, 27 February. Bech, M.L., L. Gambacorta and E. Kharroubi, (2012), “Monetary policy in a downturn: Are financial crises special?”, BIS Working Papers No. 388. Bernanke, B.S.,T. Laubach, F.S. Mishkin and A.S. Posen (1999), Inflation Targeting – Lessons from the International Experience, Princeton University Press. Bernanke, B.S., (2004), “The Great Moderation”, speech at the Eastern Economic Association, Washington, 20 February. Bini Smaghi, L., (2013) “Who killed the inflation target?”, in Reichlin, L. and R. Baldwin, (ed. ), “Is Inflation Targeting Dead? Central Banking After the Crisis”, Centre for Economic Policy Research. Brunnermeier, M.K., T.M. Eisenbach and Y. Sannikov, (2012), “Macroeconomics with Financial Frictions: A Survey”, NBER Working Paper 18102.

This development has caused some analysts to talk about “the missing deflation”.5 The so-called Phillips curve, which shows the relationship between the rate of inflation and economic activity, appears to have flattened compared with before.6 One possible explanation for this development is that the monetary policy conducted in recent decades around the world – where independent central banks have primarily focussed on attaining low and stable inflation – has gradually succeeded in anchoring inflation and inflation expectations. This has meant that the Phillips curve has stabilised in a situation with low average inflation. It is not entirely clear why this would also have contributed to reducing the slope of the Phillips curve, but we cannot rule out the possibility that if expectations are anchored better, price-setting and wage formation will be less sensitive to changes in economic activity. So, even if a monetary policy aimed at keeping inflation low and stable was perhaps not the main explanation for the Great Moderation, it is possible that it made an enduring impression in the form of a flatter Phillips curve. We cannot know whether this phenomenon is temporary or permanent. But if it is the case that we have had a fundamental change in the way the economy functions, it is also possible that this should lead to the central bank adapting, at least to some extent, the policy it conducts. A flatter Phillips curve implies that inflation has become less sensitive to the domestic demand situation – that it varies less with cyclical phases.
As economic growth gradually slows, investment growth is also expected to moderate. Oil prices are of importance for the activity level in the Norwegian economy and central government revenues. In recent years, oil prices have risen sharply. During the summer, crude oil prices rose to more than USD 75 per barrel, partly owing to the conflict in the Middle East and reduced production in Nigeria and the US. The price of oil has fallen markedly during the past few weeks to below USD 60  BIS Review 92/2006  3  per barrel. Futures prices have fallen less and futures prices are now at a good USD 65 per barrel at end-2008. Brent Blend futures prices indicate that oil prices may remain high several years ahead. Export prices for Norwegian natural gas largely follow developments in oil prices with a lag. Since autumn 2005, prices for Norwegian gas exports have risen substantially according to the quarterly reports of the oil companies Statoil and Hydro. In the next few years, natural gas will account for a steadily larger share of total petroleum production on the Norwegian continental shelf. Petroleum investment has reached a high level after three years of strong growth. In 2005, investment was nearly NOK 87 billion. The large Ormen Lange and Snøhvit projects have contributed to high petroleum investment, and high oil prices have fuelled activity even at fields that have been in production for a long period.

Wage growth is now put at 4.5-5.0 per cent in most sectors. It is reported to be even higher in building and construction. Profitability continues to improve in all industries in region South-West. In many industries, profitability growth is somewhat lower than in the previous round. The exception is import-competing manufacturing where profitability is stable and in the service industry where it is improving further. So far, the buoyant activity level in the region has resulted in an accelerating rise in prices in highly sheltered sectors such as building and construction and services. More generally, enterprises report that prices have risen in the past 12 months. Six of ten companies expect prices to continue rising at the same pace during the next 12 months, while more than 25 per cent of the companies expect prices to rise at a faster pace. For the country as a whole, inflation has edged up since the beginning of the cyclical upturn. The yearon-year rise in the consumer price index (CPI) was 1.9 per cent in August. Energy products such as electricity and oil has accounted for a considerable portion of the rise in prices over the past year. Electricity prices, including grid rent and taxes, were 25 per cent higher in August than one year earlier, while petrol prices were close to 11 per cent higher. Since the beginning of 2001, energy prices have exhibited an average increase of over 7 per cent. Variations in energy prices may also lead to wide monthly variations in consumer price inflation.