samchain/econo-pairs-v1 huggingface dataset:
I think we have a significant role to play in-terms of capacity building not just in the banking sector, but in several other sectors that are vital to the economy. That is the challenge that all of you have to remember and try and participate. I myself, when I worked in these institutions few decades ago, the Ministry of Industries, in the Treasury, it was a very enriching experience personally. But at the same time, I carried over the expertise I had picked up in the Central Bank and enriched those institutions as well. So that tradition should continue and I think it is incumbent on the central bank to really use our manpower. All of you are a concentrated pool of brainpower in this country. I do not think any other institution has so many qualified individuals. We have engineers, we have people from all sorts of fields, not just economics, in this institution, and we have to really build on those skill sets. One of the plans I have, which I am discussing with the DGs, AGs, is to try and deepen our skill sets. We have to identify specific skill sets which are necessary for the central bank in the first instance, and also for the broader nation and to try and deepen those skill sets in a conscious basis so that our manpower development, what you call the improvement of our human capital becomes much more entrenched and becomes much more integrated interms of the national economic developmental effort.

One explanation of the relatively low level of overall investment in Sweden, which is one of the factors behind the current account surplus, is in fact the low level of investment in housing (see Figure 10). There are thus no signs that the credit growth we have experienced has financed a building boom or that it is associated with a low level of domestic saving. In recent years, the number of new-builds in the housing sector in Sweden has been around 20 000 per year, which a low figure in historical terms.13 The low level of new housing construction is thus an important factor behind rising house prices.14  12  When all of these three factors deviated significantly from their normal patterns at the same time, there was a 56 per cent probability of a substantial fall in housing prices. See IMF (2009), World Economic Outlook, October. 13  This is a level that over the last 50 years has only been lower for a few years during the 1990s (Statistics Sweden, 2012 “Housing construction low for a long time”, SCB Economic Indicator, no. 2012:92). 14  Peter Englund, among others, points to the low level of housing construction in Sweden as one of the reasons for the sharp increase in prices; see Englund, Peter (2011), “Swedish house prices in an international perspective”, Chapter I.1 in The Riksbank’s inquiry into risks in the Swedish housing market. BIS central bankers’ speeches  11  Figure 10.
Businesses should continue to focus attention on improving, branding, investing in research and development, and promote innovation. Businesses should increase efficiency of resource usage by reducing waste. Waste add to cost of production of goods and services. For instance, post harvest losses in perishable agricultural products is estimated to be around 30%-40% which has been repeatedly articulated by CBSL in its past annual reports. Businesses should also attempt to shift from the traditional methods of employing labour and capital towards IT-based new technologies. In addition, knowledge based product markets should be developed to attract business and knowledge processing centres. Such activities would not only bring in additional sources of foreign exchange, but will also move production processes towards high tech methods. 6. Households and the general public  Misconceptions about the term inflation Inflation is interpreted in various ways by various circles. The price tags on products and services in shops, supermarkets and service centres is not the inflation but it is the rate of increase in prices. In other words, it refers to a continuous growth in general price levels in the economy. Households and the general public should also recognize that short term shocks like droughts, floods and landslides could temporary raise the prices of basic food items but it will stabilize when situation is back to normal. The high prices at a given point in time should not be construed as inflation and they need not build-up inflationary expectations.

Otherwise you might rationally expect to end up among the small minority that does not expand and at the same time still have the tighter monetary policy that results from everyone else expanding. This is the classic “prisoner’s dilemma” from game theory. The conclusion is that it is necessary to have rules for fiscal policy that limit deficits and debt when monetary policy is united and fiscal policy divided, and that these rules need to be followed in a credible fashion. But, in addition, the conclusion is also that the temptation to over-expand is as strong during an upturn as during a downturn. In fact this is what we have seen in the euro area during the heyday of the late 1990s and the beginning of the 21st century – a much too expansionary fiscal stance in some euro area countries, especially in good times, which led to tighter monetary policy by the ECB and thus an incentive for others to further weaken fiscal discipline. When the downturn eventually came, the euro area entered this phase with large deficits instead of surpluses. What the Pact then required, a 180-degree turnaround in fiscal policy to a tighter stance, reinforced the downturn and was considered by some as stupid. In fact it was the lack of savings  BIS Review 88/2006  1  during the boom that was stupid. Thus, rules would be needed not only for a maximum deficit in a downturn, but equally some forceful rule for fiscal rectitude in good times.
It will also be a major determinant of potential inflows from non-residents at the same time. It is precisely one of the key factors in preparing for liberalisation to facilitate the recognition of Iceland as a sound, trustworthy investment option, and that resident investors – and not only the sovereign – have access to foreign credit markets on sustainable terms. Under current conditions, this means that we need an economy that is growing and is in equilibrium, both internally and externally. We need a Treasury surplus, and we need to reduce the Treasury debt ratio. We need strong enough national saving to support a normal investment level. Given the current outlook for investment, this means we must have a surplus on the current account of the balance of payments. We need large enough foreign exchange reserves to sustain the confidence of foreign lenders, maintain our credit ratings, and cushion us against volatility. We need a banking system that is solid and resilient. As I mentioned earlier, we are doing well in many of these areas, and the conditions exist for further improvements during the current year. The extension of the maturity of Landsbankinn’s debt to the old bank (LBI), which was finally negotiated towards the end of last year, has improved the situation. It enhances the possibility of expanding the foreign 4  BIS central bankers’ speeches  exchange reserves and increasing the portion not funded with foreign credit. In 2014, the Bank was a net purchaser of foreign currency in the amount of 111 b.kr.

The liberalisation of the capital controls is a collaborative project undertaken by the Central Bank and the Government, which actually means that elected representatives have the last word on the actions taken – particularly if and when tools are used that are not in the Bank’s toolbox. Honoured guests: I have spoken at some length on monetary policy and the labour market, on the one hand, and the capital controls, on the other. But I have done so with a purpose, as these are by far the greatest economic challenges facing us at the moment. Yet the Central Bank’s sphere of activity includes many other functions as well, not least those centring on the structure and stability of the financial system. Let us hope that, when we convene a year from now for the Central Bank of Iceland’s 55th Annual General Meeting, we will have resolved successfully the urgent issues now facing us and can turn our attentions to these other areas of activity. In the field of financial stability, emphasis has been on the risks related to the capital controls and on the formulation and implementation of the prudential rules that, in our opinion, must be in place once the controls are lifted. That work is well underway. And as regards risk assessment and contingency planning, the Systemic Risk Committee and the Financial Stability Council will be meeting next month, and the Central Bank’s Financial Stability report is scheduled for publication on 22 April.
In such a world, by adjusting the level of the federal funds rate, the FOMC could be fully confident that it could generate the appropriate financial conditions necessary to support achievement of full employment and price stability. In fact, the response of financial conditions to changes in short-term interest rates is not rigid and predictable. Instead, as we shall see shortly, the linkage between the federal funds rate and financial conditions changes over time, as it is influenced by a whole host of other factors. Recent evidence suggests that even the relation between short-term and long-term rates has shifted substantially over the past 15 years.4 Moreover, at times, we have observed cases in which financial conditions did not move in the same direction as the monetary policy stance. Let me highlight two recent divergences which indicate that we need to keep a separate eye on the evolution of financial conditions. The first occurred in the mid-2000s. In June 2004, the FOMC decided to begin raising the federal funds rate target in order to remove policy accommodation. It raised the target in 25-basis-point increments at 17 consecutive meetings, pushing the rate up from a starting point of 1.0 percent to a peak of 5.25 percent. Despite this tightening of monetary policy over two years, financial conditions failed to tighten in a similar manner. This can be seen by looking at the behavior of well-known measures of financial conditions during this period (Exhibit 1).

Accordingly, we should care much more about longer-term movements in financial conditions than about higher-frequency, transitory movements. That is because behavior in firms and households will be influenced much more by how financial conditions evolve over time, rather than by where they happen to be at a particular moment. To emphasize this point, let me give two contrasting examples—one where financial conditions moved sharply but not persistently, and another where financial conditions moved systematically over a longer time period. We will see that it is the long-lived movements that have the largest influence on the economic outlook. For the first example, consider the U.S. equity market in 1987. The S&P 500 index began the year at 242, shot up to a peak of 337 in August (an increase of almost 40 percent) and plummeted to a trough of 225 in October (a fall of 33 percent). When the stock market fell more than 20 percent on October 19th—which came to be known as “Black Monday”—many feared that the decline would lead to a recession. After all, that crash was the largest-ever one-day percentage decline of the U.S. stock market. But, no recession occurred. Importantly, households sustained their spending despite the sharp decline in household wealth. This happened, in part, because household spending had not yet responded much to the sharp run-up in stock prices earlier in the year, so consumer spending turned out to be relatively insensitive to the market’s sharp reversal.
Brexit  Nowhere has that been more obvious than Brexit. On June 24th 2016, we started contingency planning for a ‘no-deal’ Brexit. With our focus on making sure finance can serve the wider economy, our work has had two elements. First, checking that, whatever economic disruption arises as we leave the EU, major banks have the capacity to keep lending through it. We know from our stress tests that banks can withstand an economic scenario for the UK that is worse than the financial crisis. That stress test scenario encompasses even a Brexit scenario based on the very worst case – ‘disorderly’ – assumptions, including: severe disruption at the border, acute economic uncertainty and financial market instability, and sharp increases in inflation requiring interest rates to rise. On that basis, we’ve been able to judge the core of the UK banking system to be able to continue to serve through Brexit, whatever form Brexit takes. The second element of our work has been to ensure that households and businesses using services from EU financial companies can continue to draw on those services after Brexit. 70 branches of EEA banks operate in the UK and provide services to both EU and UK end users. UK households and businesses hold 16 million insurance policies with EU insurers.8 UK investors invest in funds based in the EU. And clearing houses based in the UK sit at the centre of EU and global derivatives markets, helping the financial system to manage and distribute risks.

Stress tests show major banks at the core of the system can now not just withstand recessions in the UK and world economies that are deeper than the financial crisis, they have the capacity to keep lending to households and businesses.6  This will serve the UK well in the next economic downturn, whatever causes it and whenever it comes. That’s the point of financial stability. It’s not for the benefit of finance. It’s for the benefit of the wider economy. Regulation of finance is a means, not an end. That’s why it would have been a mistake to pursue the ‘stability of the graveyard’. Easy though that may have been when the memory of the crisis was raw, and though it would have been beneficial in the bad times, it would have brought too great a cost at all other times. Our mandate means everything we do must cost the economy no more than the benefit it brings in the bad times. That explains why, for example, we haven’t gone as far as some would argue for in making banks bulletproof to all possible shocks, however extreme and implausible. When it comes to the resilience of the core financial system, the regulatory pendulum hasn’t been swung too far. It doesn’t need to be brought back. We’ve balanced the benefits of our actions with the costs. So it would be harmful to swing back from here.
By contrast, in Greece, Portugal and Spain reforms were less fast and comprehensive. In Spain, for instance, slow implementation of labour market reforms meant that wages continued to rise until the third quarter of 2011, despite output falling by almost 5% in that time. In Greece, labour market reforms were enacted early on but without in parallel opening up product markets, meaning that when wages adjusted, prices did not: the price level only began falling in October 2012. The result was that these countries experienced a quantity adjustment – higher unemployment – which triggered a protracted disinflationary process that is still ongoing.12 In sum, while both options have been costly in terms of output and employment, and notwithstanding differences in labour market flexibility, in a situation where countries had to undertake an internal devaluation, accelerating the pace of reforms seems to have been the better approach. It has led more quickly to higher growth prospects and higher current and expected inflation – i.e. conditions where the positive income effects of reforms can outweigh the negative real interest rate effects. This contrasting experience also, in my view, disproves the view that reforms should be staggered because political capital is scarce. We have seen that this type of thinking tends to lead to authorities avoiding taking on organised vested interests – such a protected sectors – and instead prioritising measures that affect a more diffuse group – such as lowering minimum wages.

They inevitably reduce real national income  Chart 16: Monetary policy cannot offset the fall in real incomes caused by a terms of trade shock  Page 27 Sources: ONS, Bank of England, Bloomberg Finance L.P. and Bank calculations. Nominal wages in the chart are private sector regular pay. It’s interesting too to ask what the world might now look like had this very steep path for interest rates been taken – but without any subsequent rise in import prices. The outcome of this experiment is the ‘alternative variant’ line in Chart 17. The predicted result – this despite the prior growth in household deposits – is a steep fall in inflation, well into negative territory. All this makes it a challenge, I think, to argue that the rise in broad money in 2020 is the main (or even an important) contributor to the inflation that’s followed. Chart 17: In the absence of big rises in import prices tighter policy would have pushed inflation into negative territory  Sources: ONS, Bank of England, Bloomberg Finance L.P. and Bank calculations. The ‘alternative variant’ reflects the same monetary tightening imparted in the ‘scenario’ but no increase in the contribution of import prices (energy and other goods) to CPI inflation relative to its pre-Covid average.
Swedish Ministry of Finance (2019), “Uppdrag till Riksgäldskontoret att genomföra en emission av gröna obligationer”(Swedish National Debt Office tasked with issuing green bonds), Government decision, Fi2019/02708/S. NGFS (2019), “A call for action. Climate change as a source of financial risk”, Network for Greening the Financial System, First comprehensive report, April 2019. Rachel, Łukasz and Laurence H. Summers (2019),”On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagnation”, Brookings Papers on Economic Activity, spring 2019. Reichling, Lucrezia, Adair Turner and Michael Woodford (2019), “Helicopter money as a policy option”, VoxEU column. Shirai, Sayuri (2019), “Modern money theory and its implementation and challenges: The case of Japan”, VoxEU column. SOU (2017:115), “Att främja gröna obligationer” (Promoting green bonds), Report from the Inquiry into green bonds, Swedish Government Official Reports. Sveriges Riksbank (2019), Monetary Policy Report, October 2019. 7 [7]

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Albeit many people today acknowledge that the traditional kind of regulations do not produce the desired results, we tend to keep them too long. Let me give you an example. In Sweden, we had foreign exchange controls in place until 1989. Even though it was obvious that the controls were easy to circumvent and quite inefficient, the authorities were worried by what might happen if they were 1  BIS Review 66/2000  abolished. Perhaps there would be a huge capital drain? Hundreds of pages were written in attempts to map the consequences, but no comfort was provided this way. Eventually the central bank decided to go ahead in spite of the remaining uncertainty. To some surprise and some disappointment, nothing particular happened in the market. The move had been anticipated and the controls inefficient enough to allow the capital flows to adjust prior to the move. Credit controls and interest rate regulation had been abolished in Sweden four years earlier, in 1985, again probably far too late. Some people argue that the banking crisis we had in the early nineties might have been much less severe if the banking system had been forced into a competitive environment by deregulation a decade earlier. Keeping regulations too long is a danger, getting rid of them too quickly is another. This may sound peculiar, but let me again give you an illustration. When, in 1985, credit controls were abolished in Sweden, they had been in operation for more than forty years.

19 This was one of the reasons behind my reservation against the purchase decision in February 2015, see my comments at the monetary policy meeting (Riksbank 2015, p. 4-8 and 23-24). 9 [30]  Figure 6. The market already expected lower policy rates than the Riksbank Per cent  Note. Solid lines refers to outcomes. The red broken line refers to the market pricing just before the monetary policy meeting in February 2015, the blue broken line refers to the Riksbank's forecast in the Monetary Policy Report in February 2015. Source: The Riksbank. In Sweden, the signalling instead seems to have functioned in a completely different way. During 2013 and 2014, it became increasingly common for various agents in the Swedish debate to question whether the Riksbank placed sufficient emphasis on bringing inflation up to the 2 per cent target. But the combination of asset purchases and negative policy rate seemed very powerful. In 2015, the picture of the Riksbank's priorities therefore changed rapidly. There was no longer any doubt that the Riksbank was prepared to use all possible means to safeguard the credibility of the inflation target. It has probably been clear from my earlier statements that I have some doubts about whether the purchases of government bonds significantly stimulated the Swedish economy and thereby contributed to raising inflation. But I think this signalling effect was important, and more important than I realised when we started the purchases.