samchain/econo-pairs-v1 huggingface dataset:
Jarle Bergo: Monetary policy and its role in economic policy Address by Mr Jarle Bergo, Deputy Governor of Norges Bank (Central Bank of Norway), at the Confederation of Vocational Unions, Oslo, 7 February 2003. The address is based on the assessments presented at Norges Bank’s press conference following the Executive Board’s monetary policy meeting on 22 January and on previous speeches. Please note that the text below may differ slightly from the actual presentation. *  *  *  The objective of monetary policy is to ensure nominal stability. There were wide fluctuations in the Norwegian economy in the 1970s and 1980s. Economic developments were marked by high and variable inflation. Inflation accelerated in the beginning of the 1980s and it took a long time before it fell. The absence of a nominal anchor was one of the main reasons behind these pronounced swings in the Norwegian economy. With a policy of low interest rates and devaluations, inflation took root. Nominal interest rates were kept at a low level even though inflation and the value of tax-deductible interest expenditure rose. Frequent devaluations from 1976 were not able to prevent a decline in the manufacturing sector. On the contrary, they proved to be self-reinforcing. The wide fluctuations culminated in a credit boom in the mid-1980s, followed by a deep recession and high unemployment towards the end of the 1980s.

BIS central bankers’ speeches  9  separate policy committees with separate objectives and instruments but, especially given the overlap of some committee members, with full information on which policy is being conducted in each area. This is also natural, as financial stability has a longer cycle and thereby needs less frequent decision-making than monetary policy. The well-functioning relationship between separately conducted monetary policy and fiscal policy in Sweden can, in my opinion, serve as a model for how the relationship between monetary policy and financial-stability policy should be. If one mixes together monetary policy and financial stability, it also becomes more or less impossible to evaluate monetary policy. Then an overly tight monetary policy can be blamed on an endeavour to maintain financial stability. Inflation and unemployment in the longer run Average inflation has undershot the target If the Riksbank succeeds in stabilising inflation around the target and unemployment around a sustainable rate, average inflation should be in line with the target over a longer period of time. Indeed, “without prejudice to the price stability objective” can be seen as making sure that average inflation over a longer period of time is close to 2 per cent. But during the period 1997–2011 average CPI inflation in Sweden was 1.4 per cent, measured using real-time data. 11 One cannot of course expect average inflation to have been exactly on target over the last 15 years.
As I mentioned in October before Parliament and have reiterated later on several occasions, it is essential to avoid triggering a spiral of price and cost increases which would only exacerbate the already harmful effects of the current shock. Such a spiral can be avoided through an incomes agreement between firms and workers.4 I would now like to put forward some general principles which, I believe, should help to define it. First, this incomes agreement should involve distributing among firms and workers the diminished income in the national economy vis-à-vis the rest of the world that the recent cost increases entail. I must insist on this point again: the aim is to distribute costs. All the actors involved must sustain a loss. Workers will not be able to maintain their purchasing power in the short term, nor will firms be able to maintain their profit margins. Were workers to bear the full brunt of the adjustment, in the medium term firms would also suffer the consequences in the form of a sharp drop in demand. Conversely, if in the current situation we were to place the full burden of the adjustment on firms, many of them would be forced to close and many others would experience significant losses in competitiveness that would affect their future investment capacity. All of this would ultimately undermine job creation and our citizens’ well-being. Indeed, the latest information available suggests that this sharing of costs between workers and firms is already taking place.

While the initial focus has been on institutional building and financial infrastructure development, greater attention needs to be given to increasing the range of products and services to meet the greater sophistication of consumers and the more complex requirements of today’s businesses in addition to enhancing the overall efficiency at which such products and services are provided. Several factors are important to provide an enabling environment that would encourage and promote innovation. Firstly, a highly qualified and skilled workforce in the industry is indispensable for innovation. Training is a major means for promoting innovation. Personnel development in the industry is therefore important. In addition, industry involvement and participation in university education through course development, teaching and internship will contribute to this process. In Malaysia, an industry-owned research and training institute in Islamic banking and finance known as the Islamic Banking and Finance Institute Malaysia or IBFIM has been established to spearhead greater collaborative efforts with universities to undertake research in areas that are vital for the progressive development of the Islamic financial industry. Increasing the capacity to innovate and securing long term competitiveness also underscores the importance of developing strategic leaders for Islamic financial institutions, leaders who are able to  BIS Review 20/2004  1  reinvent themselves in this new environment.
BIS Review 39/2004  1  It is something of a paradox that the decline of the dollar has been concentrated against the currences of the least dynamic economies whose current accounts are relatively balanced, while it has held very stable against the currencies of the highest-growth countries which account for most of the US trade deficit. In any event, the contribution exchange-rate movements may be expected to make in correcting global external imbalances is limited; what are needed are economic policy adjustments by the main countries. Not only was no headway made in 2003 in this area, but economic policies remained oriented, in certain cases, in the opposite direction to what was needed to reduce the imbalances, especially as regards the US budget deficit. As mentioned, the international economic outlook has improved appreciably in 2003 and early 2004. In turn, the recovery will foreseeably take hold in those countries most ahead in the cycle, while those most behind are expected gradually to join the upturn. Nonetheless, certain risks remain and should be borne in mind when assessing the future course of the recovery. An initial risk is that the persistence of current-account imbalances may exacerbate volatility on international foreign exchange and financial markets. Achieving a distribution of world growth more in line with more balanced current-account positions without jeopardising the recovery is, therefore, one of the main challenges facing the world economy.

It is all about getting the banking system into a position where it can demonstrate robust capital and liquidity buffers, and to do so by facing up to the discipline of the market rather than the support of the authorities. The Edinburgh fund managers are an important part of that market discipline. In a market economy, you are in the front line of defence and discipline. Now, I cannot say that the UK is insulated from the risks we observe in other parts of Europe. As our most recent Financial Stability Report, published just before Christmas, made clear, “the United Kingdom is only partially insulated given the interconnectedness of European financial systems and the importance of their stability to global capital markets”. As the Report also made clear, there are other, probably more medium-term risks posed by evidence of low bond yields in many advanced countries and signs of an intensifying search for yield as capital flows into alternative assets, including into emerging markets. Against this backdrop of risks, it is in the collective interest of banks to continue to build up progressively their capital and liquidity resilience so that they support not only themselves, but also the stability of the financial system as a whole. The Basel III agreement, and the reform programme of the G20 and the Financial Stability Board set up under the G20, will provide the supporting framework by which the authorities will back up the discipline of the market to achieve and maintain financial stability.
However, in general terms, we take note of this delayed growth and also the difficulty of reducing the unemployment level in France which, despite starting to fall very recently, is struggling to dip below 10%. So there is a need for labour market reform and reform of the services sector, as that is where jobs are created, as well as a need to be more ambitious in opening up the 2/4  BIS central bankers' speeches  services sector, for example the regulated professions. In addition, and this is a message that might not please people in France, but it’s my duty to say it – reforms are also needed in terms of fiscal balances. French debt is approaching 100% of GDP, and the deficit is still above 3%. So you are issuing a warning to those candidates, whoever they may be, that are saying they are willing to let deficits slip above 3%. Yes, we must...  That’s unacceptable. The candidates for the French presidential election, whoever they may be, shouldn’t think that, when they take office, they will find a pot of money to spend or room for budgetary manoeuvre. This room for manoeuvre doesn’t exist and there is a risk that interest rates will rise. If and when interest rates begin to rise, the debt burden will increase and the risk is that it will crowd out all other government spending. Benoît Cœuré... It’s a risk.

Real short-term interest rates were reduced around the world, following a nearly decade long secular decline in inflation rates, a slowdown in growth at the turn of this decade and subsequent deflation. As central banks raised their policy rates when the outlook improved and deflation risks had dissipated, both real and nominal long-term interest rates remained anomalously low. Global savings appeared to rise faster than did perceived real investment opportunities, and this development helped to push down real long-term interest rates around the world. At the same time, many emerging market economies built up very large levels of official reserves to reduce external vulnerability and to hold the value of their currencies stable against the dollar. The exchange rate policies in these economies – economies that together accounted for a increasing share of global GDP – made overall global financial conditions more accommodative, even as the United States and other countries tightened their monetary policies. Expected and realized volatility in both debt and equity markets were remarkably low for most of the last half a decade. Term premiums declined and remained low over much of this period. Credit spreads across a wide range of asset classes fell to levels that assumed unusually low levels of future losses. In the United States, credit, and mortgage credit in particular, expanded relative to GDP.
This question basically relates to the Year-old discussion of “should the central bank prick bubbles or not?” Today asset price considerations are present in central banking practice in many countries – Norway, eurozone or Japan, to name just a few. Norgesbank speaks openly that when setting interest rates it does not ignore developments in asset and credit markets 17 and its inflation report contains an asset price forecast. The ECB’s president Trichet has in turn acknowledged that the monetary pillar of the ECB “contributes to assessing the extent to which excess creation of liquidity and over-extension of credit can be a driving force behind excessively valued assets […] and might reflect the inflating of an asset price bubble” 18 . Bank of Japan said in its “New Framework for Monetary Policy” that “risk factors include […] generating an asset price bubble” and that “in conducting monetary policy, the Bank needs to do its utmost to prevent the materialisation of such potential risks.” 19 A hot issue in today’s discussion about IT is transparency and communication. More and more economists realise that communication is the primary channel of central bank’s impact on the economy and monetary policy is increasingly becoming an art of managing expectations. Lars Svensson argues that current level of central bank interest rates matters very little for future inflation and economic activity, while Michael Woodford claims even that apart from expectations, little else matters 20 . For this reason inflation targeters put an ever larger weight to effective communication.

16  “The extra-action strategy responds to a perceived speculative boom with tighter monetary policy - and thus lower output and inflation in the near term - with the expectation of significantly mitigating the potential fallout from a possible future bursting of the bubble. Thus, the strategy seeks to trade off the near-certainty of worse macroeconomic performance today for the chance of disproportionally better performance in the future, on the theory that the repercussions of a major market correction could be highly nonlinear. But the extra-action proposal is by no means a bold call for central banks to prick market bubbles.” - Kohn D. “Monetary Policy and Asset Prices” at “Monetary Policy: A Journey from Theory to Practice - An ECB Colloquium held in honor of Otmar Issing”, 16 March 2006. 17  “Interest rate setting must also be assessed in the light of developments in property prices and credit. Wide fluctuations in these variables may in turn constitute a source of instability in demand and output in the somewhat longer run.” – Norgesbank, Inflation Report, March 2006. 18  Trichet J.C. “Asset price bubbles and monetary policy” Speech of the President of the ECB, Mas lecture, Singapore, 8 June 2005. 19  Fukui T. “New Framework for the Conduct of Monetary Policy: Toward Achieving Sustainable Economic Growth with Price Stability”, Summary of a Speech Given by Toshihiko Fukui, Governor of the Bank of Japan, to the Japan Chamber of Commerce and Industry in Tokyo on 16 March 2006.
The third motivation for more equity is that some companies who can bridge the virus disruption effectively with more debt could then consider their balance sheets overstretched. During the crisis, debt is the natural – fastest – way to raise finance for most companies. That’s why so much support has been provided to allow it to be raised. But it could leave an overhang. That overhang won’t be one that, at current interest rates, presents an acute problem. The share of companies with interest payments taking up a material fraction of revenues is likely to remain low. But it could create a chronic issue for the economy in the longer term. Greater leverage could damage companies’ ability to refinance and access new capital when dealing with future stresses. Governmentguaranteed loans may need to be refinanced at higher rates in future. Looking ahead to these possibilities, many prudent companies will want to repair their balance sheets, holding back on employment and investment to work the overhang off through time. 10  Source: Office for National Statistics 7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  With enough companies in that position, what makes sense individually could be harmful collectively; it could drag future growth. So it is essential to give companies every means to repair and restructure balance sheets by issuing equity to repay debt. With these three important motivations, the good news is that equity issuance is already strong.

More public equity has been issued so far this year than at the same point in any year in the past decade. [See slide 5 of accompanying deck]  But that issuance has all been by listed companies. On our estimates, the vast majority of the possible equity needed will be for companies not listed on a stock exchange. And so the challenge is to give a wide range of businesses every opportunity to access growth capital. That’s capital willing to invest in assets – like unlisted equity – that can’t easily be traded and doesn’t deliver a quick or stable return. Unlocking more growth capital  Unlocking more growth capital is not a new challenge. Three years ago, the Treasury launched a review of what it called Patient Capital. Since then, many changes have been made. The Pensions Regulator has clarified its guidance to funds. New funds, including British Patient Capital (a subsidiary of the British Business Bank), were established. And the Financial Conduct Authority now permits retail investors greater access to funds invested in illiquid assets. There is more to do. And the need for more equity finance to minimise the scarring to the economy now creates a case for ambition. A range of authorities have a role to play. Lots of attention tends to be given to schemes and ideas involving public money and the taxation of equity relative to debt.
In corporate and labour market circles it is becoming commonplace to consider what the value or social impact of a specific activity is, and to attempt to evaluate the economic and labour consequences of regulatory changes. One good example of regulatory impact is the Ecological Transition Bill that is currently pending parliamentary approval. The aim, as you know, is to switch our economy towards an environmentally more sustainable model. This aim is very broadly shared in our society, but its achievement will have large-scale implications for our productive model that may also entail undesirable social consequences. The Banco de España is working with the Ministry of Ecological Transition to assess the economic and employment implications of the law. I can assure you that measuring these consequences is not proving easy, but also that their measurement is crucial. Why is this? Measuring the consequences is essential in order for there to be genuine transparency. There has to be information; without measurements there is only noise. 2  In the absence of information, we cannot make comparisons between alternative investments, or between consumption, economic activity or funding options. Without data, we are in the hands of image campaigns and good intentions. Responsible investment has an ambitious goal: no less than to transform the economic, environmental and social reality, or at least to contribute to this transformation. So how can this ambitious goal be achieved? The answer is simple: through the behaviour of economic agents, be they households, firms or investors.

Libor: Entering the Endgame  Speech given by Andrew Bailey Governor of the Bank of England  Bloomberg Webinar, London and New York 13 July 2020  I am grateful to Alastair Hughes for his assistance in drafting these remarks and Paul Brione, Andrew Hauser, Thomas Horn, Will Parry and Edwin Schooling Latter for their input. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  Introduction “‘The passing of summer,’ I thought. ‘There can be no summer in this land without cricket.’” So wrote the journalist and author Neville Cardus.1 Covid has deprived us of many aspects of our communal lives this year. It has meant no cricket for us until last week, and in the US still no baseball. And to prove that we share an obsession with summer pastimes, a former colleague from many years ago when I was seconded to the New York Fed gave me a book to read called ‘How Life Imitates the World Series’. Sadly, my speech cannot match that for importance. But a more recent summer tradition has been speaking on Libor, a now annual event for the past few years – but one I do not expect to be a permanent fixture. The time is fast approaching to draw stumps on the Libor benchmark, or for those to whom cricket is a mystery – after all not everyone appreciates a sport that can last five days and still end in a draw – we will soon be at the bottom of the ninth for Libor.
If we eliminate the bias in these findings resulting from the inclusion of construction and real estate activity, which should not be included under either polluting (“brown”) or “green” activities, polluting activities continue to have a lower default rate, although the gap between the two is much narrower. In any event, I believe the findings are unsurprising. Many companies labelled as “brown” have high profit margins and their ability to generate profit is partly a result of their being regulated activities and having, in many cases, a dominant market position. Moreover, to date these companies have not had to assume the cost of the pollution they cause, so in an energy transition scenario their advantage in terms of profit margin could be affected. The banking sector as a facilitator of change in the production model I should like to refer briefly to the second point I mentioned above. As indicated in the 2015 Paris Agreement, the banking sector has an essential part to play to facilitate change in the production model. Indeed this second goal is related to the first, as correctly measuring environmental risk should assist in the transition towards a more sustainable model and would, therefore, be a logical consequence of the first goal. As I have said previously, one essential feature of any viable business model is that banks identify and quantify all the costs and risks involved and pass them through to prices and capital.

Another important issue is the involvement of finance ministries in the crisis management framework. A High-Level Working Group, comprising representatives from the ministries of finance, central banks and banking supervisors, is working on concrete proposals for cooperation arrangements between the three authorities at EU level. As regards financial stability monitoring, the EU framework has been enhanced considerably in recent years. In this context, I would like to highlight the stability assessment of the EU banking sector, performed by the ESCB’s Banking Supervision Committee, and the comprehensive analysis of potential vulnerabilities in the euro area financial system as a whole, which was carried out as part of the ECB’s Financial Stability Review. In addition, the CEBS is expected to improve its internal exchange of information on individual institutions and groups. 2  BIS Review 18/2005  Markets I now turn to the second component of the financial system, the financial markets. The introduction of the euro and the measures adopted under the FSAP have spurred the integration of the European financial markets. Nevertheless, there continue to be varying degrees of integration. Wholesale money and bond markets tend to be relatively well integrated, but only the unsecured euro money market has reached a fully satisfactory level of integration. The integration of the market of debt securities has been significantly increased, although not yet reaching the level of the United States.