samchain/econo-pairs-v1 huggingface dataset:
Let us take as our starting point the following scenario, which has similarities to the economic situation over the past few years. Interest rates abroad have fallen and there are prospects that they will remain low for an extended period. At the same time, higher capital requirements for banks have seemed likely for some time and, in response, banks have increased their lending margins. In this chart, we have used the NEMO model to analyse how these factors affect the economy, including the interest rate. Low interest rates abroad widen the interest rate differential against other countries. This points towards a stronger exchange rate, which will result in lower inflation and output further ahead. At the same time, banks keep lending margins higher than normal for a period in order to build up capital. Higher bank lending margins and lending rates dampen growth and inflation. Both higher lending margins and lower interest rates abroad imply a lower key policy rate in Norway. In this scenario, the central bank reduces the key policy rate, but by less than the decrease in interest rates abroad. As a result, the krone appreciates. This leads in the short term to lower activity and inflation, but a lower key policy rate and slightly lower bank lending rates will gradually result in higher capacity utilisation and higher inflation. Borrowers, however, only experience a limited reduction in bank lending rates because of the assumed rise in bank lending margins. Somewhat lower interest rates and higher output nonetheless result in increased credit growth.

Since Norges Bank will be providing the Ministry of Finance with concrete advice regarding a countercyclical capital buffer, I would like to devote some time to stating the reasons why such a buffer is necessary, and why, more generally, regulation of the banking sector is necessary. Then I shall touch upon the interaction with monetary policy and will also add some brief comments about some of the challenges facing monetary policy in the wake of the financial crisis. Why capital regulation? A well functioning financial market is essential for virtually all other economic activity in a market economy. Banks are a key component of the financial system. Banks channel money from savers to investors. Banks determine who should be given credit and closely monitor borrowers and their projects. This is a task that would be difficult for small savers to undertake. Resilient banks and prudent banking are important for a solid and stable economy. If banks end up with insufficient equity capital following substantial losses in bad times, they will have to tighten lending. This may serve to amplify the downturn, as is currently the case in a number of European countries. Compared with other enterprises, banks have limited equity capital. It is often more costly for banks to fund lending with equity capital than with deposits and borrowing from the market. As deposits are readily available to depositors and many deposits are covered by a deposit guarantee, depositors accept a relatively low interest rate.
The outstanding capital market debt of these corporations has more than doubled since the financial crisis – to almost CHF 70 billion. This is due, among other things, to the fact that it has become more attractive for them to finance themselves via the bond market than via bank loans (cf. chart 4). Having said this, relative to these companies’ total liabilities as well as to GDP, capital market debt remains low. The increase nevertheless shows that corporations have, as expected, taken advantage of the exceptionally low interest rates to raise more capital. As a result of this development, the market for bank loans has become slightly less important than the capital market. Notwithstanding this, when it comes to external financing, bank loans continue to play a key role. As is the case in many European countries, as well as Japan, Switzerland’s financial system is fundamentally bank-centric. Bank loans account for just Seite 3/7  over 80% of companies’ external financing. 1 In the UK and the US, on the other hand, companies raise a far larger share of their financing via the capital market. From a monetary policy perspective, the differing transmission of negative interest to the capital market and lending rates is unproblematic to the extent that stimulating lending was never a priority for the SNB. 2 The core concern was – and is – the restoration of the interest rate differential with other currencies and the associated effect on the exchange rate.

I would like to thank you very much for your attention. I will now hand over to my colleague, Dewet Moser, who will provide more detailed information about the latest developments on the money and foreign exchange markets.
That uncertainty maps into differing views as to exactly how accommodative monetary policy needs to be. On the one hand, there is a risk that the strength and durability of the recovery may disappoint. Our economy still faces considerable headwinds, especially within the household sector, where real incomes have been squeezed and many families may not yet have adjusted fully to the implications of the substantial fiscal consolidation now in train. On the other hand – as I’ve discussed – there is a risk that inflation may remain higher for longer than currently expected. Either because global price pressures continue to add to domestic inflation or because the persistent period of above target inflation starts to become ingrained in wage and price setting behaviour. It is still too early to reach any firm conclusions, but it seems likely that the terrible events in Japan and the political upheaval in the Middle East and North Africa will add to both of these risks. The huge disruption in Japan and the uncertainty associated with events in Libya are likely to dampen global demand, at least in the short run. But the accompanying increases in energy prices are likely to add to domestic inflation. At the MPC meeting two weeks ago I voted to raise Bank Rate to 0.75%. Even with this increase in rates, the stance of monetary policy would remain highly stimulatory. Bank Rate would still be close to an historic low and the stimulus from our programme of quantitative easing would be unaffected.

Yes, it is perfectly possible to explain why inflation has been so high for so long. And yes, there are good reasons why monetary policy did not try to keep inflation closer to target during this period. But just like the Judge looking down on me earlier, to some people, at some point, this may just start to sound like a series of excuses. This risk is heightened by the fact that the MPC has consistently under-predicted inflation during this period. It is much easier to be wise after the event. For many people, the one thing about inflation they know with certainty is by how much their cost of living has increased in recent years. And if they take any signal from that about the path of future inflation, this could have significant implications. Discussions of MPC credibility are often framed in terms of a set of binary arguments. Has the MPC lost its credibility or not? Are inflation expectations anchored or de-anchored? This approach encourages a focus on measures of medium-term inflation expectations. The rate of inflation expected over the next year or so may consistently move around since the MPC does not attempt to bring inflation back to target over very short time horizons. But this  10  In the extreme, the law of one price (LOOP) suggests that, in the absence of transport costs and trade barriers, the price of a given commodity will be the same all over the world.
Chart 4: UK market concentration and mark-ups Sales-weighted markup (per cent)  6 5 4 3 2 1  y = 0.2132x + 1.4031 R² = 0.0014  0 0  0.1  0.2  0.3 0.4 0.5 Market concentration (HHI)  0.6  0.7  0.8  Sources: ONS, Thomson Reuters Worldscope and Bank calculations. Notes: Data show market concentration and the average firm-level mark-up at the 2-digit sectoral level. The market concentration metric shown here, the HHI, is normalised to be between zero and one. While the relationship shown here – at the sector level – is only weakly positive, the relationship between firm-level mark-ups and the HHI is statistically significant in a regression when firm and time fixed effects are included. Mark-ups also exhibit a positive relationship with other broad measures of profitability, such as the dividendsto-sales ratio and the market capitalisation-to-sales ratio. 26  All speeches are available online at www.bankofengland.co.uk/speeches  26  Chart 5: UK-listed firms’ sectoral mark-ups Mining and Quarrying Manufacturing Construction Wholesale and Retail Transport and Storage Accommodation ICT Professional, scientific and technical Administrative and support Other service activities  Cumulative change in the mark-up since 1987 (Δ0.5=50pp) 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4  Note: the Arts, entertainment and recreation sector is excluded. -0.6 1987  1990  1993  1996  1999  2002  2005  2008  2011  2014  2017  Sources: Thomson Reuters Worldscope and Bank calculations.

Overall, the reforms in these markets, along with the regulatory reforms to the oversight of financial institutions, should result in more robust system of credit intermediation, whether it is taking place through traditional intermediaries or through the markets more broadly. This reform process faces several important risks, though. First, there is a possibility that the process will stagnate or end up incomplete, given that the issues are complex, the stakeholders are numerous and the solutions are not always obvious. Second, there is a risk that, with so many efforts taking place in so many areas, the results will not fit together into an effective, cohesive solution. And third, there is the risk that the pursuit of reform will be overly zealous, resulting in a set of restrictions that will significantly undermine the functioning of financial markets during normal periods and thereby impede employment and growth. On this last point, it is worth making a few observations about the functioning of financial markets as we think about how to encourage a safe and yet efficient financial sector. These points may be obvious but are worth emphasizing. First, securitization is a powerful vehicle that should play an important role in the intermediation of credit in the economy. Securitization can be quite effective at transforming illiquid assets into negotiable securities and transferring risk to a more diversified set of holders. To be sure, the expansion of securitized credit was much too extensive, and its subsequent collapse was terribly disruptive, contributing significantly to the damage to the economy.
It has recently become slightly easier for the banks to issue at longer maturities both in Sweden and other parts of Europe. In the United States, too, the issue volumes in the commercial paper market have increased. The Swedish mortgage spreads have also declined. We can thus see positive effects of the measures taken, although there appears to be a long way to go before the crisis has run its course. However, looking ahead to future crises – and I do not believe that we can entirely avoid crises occurring in the future – it is desirable that we acquire a better preparedness. If there is one thing we have learned from this crisis it is that we need to have in place regulatory frameworks for managing banks in distress. Such regulations should include several different aspects, everything from a deposit guarantee system to insolvency procedures for banks. 4  BIS Review 149/2008  Above all, the crisis has pointed to the need for cross-border cooperation. We have seen examples of this in Europe. This type of cooperation on crisis management should begin in “peace time”. Contacts that have been cultivated already and a common parlance may be decisive factors in determining how efficiently a crisis in a cross-border institution is handled. It is also important to hold joint crisis exercises, using different scenarios.

Lars Nyberg: Will cash replace cards? Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at the Cards and Cash Payments Forum, Stockholm, 3 May 2011. *  *  *  I would like to thank Björn Segendorff for his contributions to this speech. Since the latter half of the 19th century, the theory of evolution has gained general acceptance. It is considered to be self-evident that better-adapted species will outcompete those that are less-well adapted. Environmental changes may even lead to some species becoming extinct. There are no longer any sabre-toothed tigers or mammoths because the Ice Age is over. A new species may also be superior to another species in a crucial way. This is why we no longer see Neanderthals walking the streets. Nevertheless, some other amazingly old species are still with us. Crocodiles have been around for 85 million years and the coelacanth, if I am correctly informed, can be traced back 400 million years! An evolutionary process, although of a slightly different kind, is now also taking place on the payment market. Rapid technological development is changing the world around us. New payment methods are arising. Bank cards and credit cards have become a natural part of our everyday lives, as has Internet banking. In Sweden, cheques have been outcompeted and are hardly used at all. The number of paper-based giro payments is falling rapidly and it also appears that the use of cash is declining.
Given the size and duration of the price increases from energy, food and other price shocks, this is not surprising. It has also been reflected, again not surprisingly, in the pickup in the various measures of short-term inflation expectations which the MPC monitors closely. What would be more of a concern is if increased short term persistence of actual inflation was reflected in an increase in medium-term inflation expectations, as this would suggest that inflation expectations might be becoming de-anchored from the 2% inflation target. Having increased during much of 2022 for households and businesses, medium to longer-term measures of inflation expectations have shown signs of easing back more recently. The October Decision Maker Panel survey of businesses showed that three-year ahead CPI inflation expectations fell from a peak of 4.8% to 4.0%. Households’ inflation expectations as measured by the YouGov/Citigroup survey eased from August highs. The most reliable market-based measure of longer term inflation expectations was on a sustained upwards trend through 2021 and into 2022, peaking at 4.7% in March8. It has been volatile around a declining trend since, albeit one distorted by the LDI episode. But  8  This is currently the 5yr2yr swap as it does not extend beyond 2030 where the index is being referenced by the UK inflation linked instruments shift from RPI to CPIH as a result of the RPI reform.

Zeti Akhtar Aziz: Reflections on financial reform – Malaysia’s experience Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the 2013 China Business News (CBN) Annual Meeting and Finance Summit “Reflections on financial reform – Malaysia’s experience”, Beijing, 8 December 2013. *  *  *  It is my honour and pleasure to be invited to speak at this 2013 China Business News Finance Summit. As the globalisation of finance intensifies, the world is becoming increasingly more inter-connected and integrated. This has largely been due to the trend towards increased financial liberalisation by most parts of the world. It has been maintained that such deregulation and liberalisation would facilitate the development of more efficient and robust financial systems and that it would result in a more efficient allocation of financial resources across borders. While such financial liberalisation may indeed bring such wide ranging benefits, it also brings with it increased risks that needs to be effectively managed. It was for these reasons that Malaysia adopted a conscious effort to put in place the financial and economic pre-conditions so as to enable us to benefit from such financial reforms involving the deregulation and liberalisation of our financial system. Allow me to share our experience in pursuing this agenda. Following the Asian Financial Crisis, Malaysia embarked on strategies for an orderly development of the financial sector.
What this alludes to is that continuous reinvention of financial offerings by our market players is necessary for the IBFC to build a niche and gain international prominence. Empirical evidence suggests long-term economic resilience can only be secured by adopting a broad-based economic development strategy. In other words, Labuan needs to horizontally diversify its economic base beyond financial services and oil and gas. Financial services might be a driver, but it will not be the main one. Unquestionably, the way forward requires a refined model that also gives equal weight, if not more, to inclusive and sustainable development of the economy. Another imperative for long term development is the issue of infrastructure. As with any other island economy, Labuan’s growth prospects are very much influenced by the availability of hard and soft infrastructure which are critical enablers for better connectivity and livability. Connectivity is also an important imperative. Frequency of flights to Labuan would attract talent and visitors to 2/4  BIS central bankers' speeches  the island. Labuan can also be positioned as the ‘halfway point’ between tourism in Sabah and Sarawak. Travelling time can be potentially reduced with the Pan Borneo Highway and physical connection between the island to mainland Sabah. All in all, the effort to transform the economy through identifying new areas of economic potential and fulfilling infrastructure needs is a difficult but not insurmountable task. We may refer to the story of our country’s development for inspiration.

Transforming the economic structure to become one that is more diversified, resilient and sustainable Over the past few decades, the finance and oil and gas sectors have been the main economic contributors to the island’s economy, representing more than half (51%) of the economy. However, the decline of oil prices since 2015 have revealed the vulnerabilities of Labuan’s economy to the volatilities in the external environment. As observed, businesses across the board declined by at least 40%, with significant repercussions on the livelihood of the local community. The focus on only these two sectors has unwittingly elevated the concentration risk on the island’s economy and the associated employment. A deeper assessment on the performance of the financial sector indicates that the intended outcomes have not fully materialised. Comparing against other international financial centres, there is still a significant gap in Labuan’s achievement from its counterparts. A case in point is the Mauritius International Financial Centre, which was established around the same time as the IBFC in the 1990s. Based on available data, the contribution to GDP of the Mauritius financial sector was 10.4% with an employment and tax revenue share of 4.5% and 6.5%, respectively. Other financial centres which entered the foray much later, such as Shanghai, have moved even further ahead in terms of tax revenue generated, as well as job creation.3 The 2017 Global Financial Centres Index ranks Shanghai at 13th with Mauritius at the 73rd position, while Labuan is currently not even ranked in the Index.
Ultimately, as regulators, we wish neither to stifle innovation nor to undermine financial stability – and it is indeed a very delicate balance to achieve. Similar to when navigating unfamiliar domains, we need to remain agile, adaptive, and proactive – this will ensure reaping the enormous benefits of financial innovations, yet limiting their downside. Let me now turn to the second part of my speech. Regulatory reforms; costly but essential Banking regulation has been another major area witnessing far-reaching reforms. Driven by the experience of global financial crisis, banking regulation, under the able leadership of the Basel Committee, has witnessed a major overhaul. Strenuous efforts have been made to improve resilience of banking systems across the globe. These measures are vitally important, given the increasing uncertainty of when or where the next shock would emanate from. Consider the stress that financial markets had to face in recent years. In 2013, it was the US taper tantrum, in 2014 it was the collapse in oil prices, in 2015 it was rebalancing in China, and this year it was Brexit, just to quote a few examples. These events were markedly different in geographical origin and root causes but were common in rattling the global markets. 3  Against this backdrop, ensuring a resilient banking system capable of withstanding a variety of shocks is no easy task. And these shocks are not only exogenous; the banking system itself is in a state of flux amid evolving risks, in part due to the very financial innovations I just talked about.

Moreover, better supervisory oversight would also give us the agility to mitigate emerging risks before they materialize. Having said that, it must be acknowledged that we can’t regulate every aspect of the banking system. Ultimately, banks should assume prime responsibility for their actions and behaviors. Being dependent on public confidence, banks can ill afford to operate with weak corporate governance 4  or poor risk culture. This necessitates that banks maintain robust corporate governance standards, duly supported by strong internal controls, and prudent risk management. We are fully cognizant that these regulatory measures are costly for banks; nonetheless, costs of any financial crisis, both in financial and social terms, are far more substantial. Therefore, it is only wise and rational to strengthen the capacity of our banks in benign times. I believe our proactive approach has actually paid off, as banks in our region generally entered the low oil price environment from a position of strength. Yet banks’ resilience is not infinite and may come under severe pressure if necessary economic and structural reforms are dropped - or even delayed. Hence, we should not lose sight of the broader economic context in which our financial systems operate. After all, the banking sector is just a component of the overall economic landscape, though a very crucial one. While ensuring banking stability is critical, it is only a necessary condition for overall economic stability – and not a sufficient one.