samchain/econo-pairs-v1 huggingface dataset:
Fiscal policy followed a cautious line during 2010, aiming to keep budget deficit and public debt in check. Budget deficit until November of this year was 23.1 billion Lekë, marking a reduction of 64%, year-on-year. Reduction of the budget deficit by 4 percentage points of the GDP during 2010 demonstrated a fiscal consolidation both in public revenues, which increased by 9.6% until November, and budget spending reduced by 4.8% during the same period. In particular, budget deficit reduction and public borrowing control in domestic financial market contributed to improved banking system liquidity and reduced interest rates in the financial market. Continuation of this tendency during 2011 would be a welcomed development for the Albanian economy. The Bank of Albania deems that the philosophy of caution pursued in 2010 in budget expenditures and public borrowing should be present for the current year as well. Foreign demand continued to support economic growth even during the third and fourth quarters. January – November 2010 recorded a narrowing of the trade deficit by about 9.2% in annual terms, which came as a result of growth in exports by about 58%. On the other hand, imports marked a more moderate growth – around 6.4 per cent – during the first eleven months. Improvement of trade deficit was favoured by an underestimating tendency of the exchange rate, moderate growth of domestic demand as well as climate and global market structures supporting Albanian exports.

In developed countries, economic growth was lower as a result of measures taken to consolidate public finances and withdrawal of fiscal stimulus. On the other hand, emerging economies maintained higher growth rates, expanding their demand for raw materials and consumption goods, thus adding global inflation pressures. BIS central bankers’ speeches  1  Economic growth is expected to continue in 2011, but uncertainties remain high. Global macroeconomic misbalancing, which appeared in high levels of trade deficit for some of the developed countries, may materialise in shocks to main currencies exchange rate and free trade exchanges worldwide. In addition, concerns over public debt and fiscal stability levels for some of the euro area countries continue to affect the sensitivity of financial markets and their tolerance to risk. Regardless of latest growing tendencies, the balance of inflation pressures is considered to be in check for the current year as well, as a result of continued existence of non-utilised capacities. Keeping free movement of people and capital at world levels, taking timely corrective measures on public debt situation, as well as creating effective mechanisms to prevent and buffer financial crisis effects at local level, will be important challenges for policymakers. On the other hand, monetary policy of main central banks will continue to be cautious, introducing an appropriate monetary stimulus into the economy in order to promote economic activity without affecting the actual and projected inflation levels. The Albanian economy recorded a positive growth during the third quarter.
Risky asset prices such as equities have risen at a rapid pace, and credit spreads and measures of credit availability have continued to ease. These changes have been driven to a large extent by the improvement in the economic outlook and, in turn, will help to promote the economic recovery going forward. The decisions taken in the second half of 2010 affecting the size of the Federal Reserve’s portfolio have provided support to that process. To be sure, economic fundamentals will ultimately exert the strongest force on financial conditions, as can be seen by the rise in Treasury yields even as the Federal Reserve expanded its balance sheet. But the Federal Reserve’s balance sheet actions have helped to make broader financial conditions more accommodative. Characteristics of the SOMA portfolio The set of asset purchase programs launched by the Federal Reserve, including those initiated at the peak of the financial crisis and the more recent actions, have changed some of the basic characteristics of the SOMA portfolio. I thought it would be useful to review those changes and to discuss their implications for the conduct of monetary policy. The most obvious effect of the purchase programs has been on the size of the SOMA portfolio. If the intended asset purchases announced in November are completed, the size of the domestic portfolio will reach approximately $ trillion by mid-year – considerably larger than the $ trillion portfolio that would be in place in the absence of the asset purchase programs.

In recent years weak growth in import prices and rapid productivity growth have been such factors. On the other hand, it may also be the case, if inflation is high and held up by special factors for a fairly long period of time, that interest rates must be maintained at a high level even when economic activity is not so strong. This means that it is also very difficult in practice to determine what is a "normal” level for the policy rate. It is possible to use different methods to calculate an approximate interval for what can be regarded as a normal repo rate. However, this type of interval will of necessity be fairly broad – in a box in the June Inflation Report it was estimated at 3.5-5 per cent. Experiences also show that the repo rate can fall outside of this rather broad range for fairly long periods of time. Given this, it can be observed that estimates of the normal level for the repo rate have a fairly limited value when assessing interest rate developments in the near future and that interest rate decisions cannot be justified merely because the repo rate is deviating from a level regarded as normal. 1  See Monetary policy in Sweden”, Sveriges Riksbank, 2006 (can be downloaded as a file from the Riksbank's website, www.riksbank.com, or ordered in booklet form). 2  Memorandum “Riksbankens inflationsmål – förtydligande och utvärdering”, 4 February 1999, registration no.
Just focusing on one or a few forecast figures would make it difficult for policy-makers to transmit the complexity of monetary policy deliberations to the public in a precise and transparent manner. Over a medium to long-term horizon, inflation forecasts based on statistical analysis become very inaccurate. Yet, medium to long-run inflation expectations are crucial in guiding the consumption and investment decisions of private agents. In order not to lose sight of the low frequency developments that may influence inflation over longer horizons than are used in the forecasts, the ECB has reinforced its analytical framework with a monetary perspective. This ‘pillar’ looks at price formation from a medium to long-term standpoint and is intended to purge monetary policy from the risk of becoming unduly short-sighted and overreacting to the latest economic news. By constantly reminding the central bank that in the long run prices and money stock increases are correlated, the monetary pillar is a standing support to the ECB’s commitment to price stability at all horizons that are relevant for economic decisions. Taking decisions and evaluating their consequences on the basis not only of the shorter-term indications from the analysis of economic and financial conditions, but also of money and liquidity considerations, allows a central bank to see beyond the transient impact of the various shocks and to maintain a more steady policy course. Looking back over our first six years of operations, monetary analysis has helped to underpin the medium-term orientation of our monetary policy conduct.

2  See Giavazzi, F. and F.S. Mishkin (2006), "An evaluation of Swedish monetary policy between 1995 and 2005”, Reports from the Riksdag 2006/07:RFR 1, Committee on Finance. See also Sveriges Riksbank (2006), “Material for assessing monetary policy 2003-2005”, box in Inflation Report no. 1 and Sveriges Riksbank (2005), “Material for assessing monetary policy 2002-2004”, box in Inflation Report no. 1. 3  See the references in note 2. 4  BIS Review 52/2007  The Riksbank’s calculations imply, for example, that an interest rate a half a percentage point lower for six months would have led to lower unemployment corresponding to two or three tenths of a percentage point. However, I would like to emphasise that this type of calculation is very uncertain. Given this, I believe that monetary policy cannot be said to have contributed significantly to the high unemployment. What other possible explanations are there? What can explain the rise in unemployment? As I mentioned initially, unemployment was held down in the 1970s and 1980s with an economic policy that was not sustainable in the long term. I believe that this could have concealed structural problems in the labour market that only became visible when the economic policy regime was changed in the early 1990s. If one studies unemployment, particularly total unemployment, over a long period of time, one can see that it has shown a trend increase ever since the end of the 1960s. This also applies if one excludes the years after the change in economic policy regime.
Final remarks While the ESRB has a better chance of achieving its mandate now than it would have had earlier this decade, its tasks will be difficult and its challenges considerable. In particular regarding the issuance of risk warnings, the credibility of the ESRB will rest upon the minimisation and balancing of so-called type I errors and type II errors. Type I errors entail the possibility of identifying those risks that subsequently do not materialise, while type II errors relate to the possibility of failing to identify risks that subsequently do materialise. Identifying a long list of potential systemic risks to financial stability could minimise the  BIS Review 115/2009  11  probability of making type II errors but may lead to accusations of “crying wolf”. The opposite could lead to an important risk to the EU financial system being overlooked, which if it materialised, could harm the ESRB’s reputation. Both the rigour of the checks for potential sources of risk and vulnerability, and the quality of the risk assessments (based on the information made available to the ESRB) should have a substantive influence on the credibility and effectiveness of the Board’s work. Addressing the type I-type II error trade-off by selecting which risks merit risk warnings can only be done by combining a comprehensive and strict monitoring of all potential sources of risk with a well-informed and detailed risk assessment.

The crisis has also shown that firm-level data on financial intermediaries, including of a supervisory nature, might be critical to identify institutions of potential systemic relevance that warrant closer monitoring and to understand interdependencies among firms and markets – interdependencies which, if impaired, could have a strong impact on the overall stability of the financial system. The key data requirements relate to: i) the possibility of joint failures of institutions resulting from their common exposures at a single point in time (these exposures could derive from shocks that come from outside the financial system or inter-linkages among intermediaries), and ii) the fact that, over time, the dynamics of the financial system and of the real economy reinforce each other, increasing the amplitude of booms and busts, and undermining stability in both the financial sector and the real economy. The financial crisis has shown that monitoring aggregate data is insufficient and may not accurately indicate the vulnerabilities hidden in the financial system and that there is the need to link micro data to macroeconomic risks. As such, firm-level data (as opposed to, for example, estimates based on country or sector aggregates) have been recognised as essential for more accurate assessments of the potential impact of risks materialising, e.g. estimating the amount of losses for the financial  10  BIS Review 115/2009  sector, as well as for conducting system-wide stress testing, contagion analysis, or the assessment of feedback loops between the real and financial sectors.
BIS Review 168/2010  17  Chart 13 Dispersion of ROE of US banks and US top 20 PNFCs (by market cap)  Source: Thomson Reuters Datastream and Bank calculations. Consistent with Bordo and Helbling (2003, 2010), there is evidence of increasing synchronicity in medium term GDP fluctuations across countries since 1980: a Wilcoxon rank-sum test rejects the null that the two samples are drawn from the same distribution at the 1% level and Jenrich’s test rejects the null that the correlation matrices are equal. 22, 23 This increased synchronisation can be explained by increasing trade and financial liberalisation (see Bordo and Helbling (op. cit.)). We observe an analogous pattern for credit cycles, with the correlation between countries’ credit cycles higher on average after 1980. The Wilcoxon test rejects the null of equality at the 5% level and Jenrich’s rejects its null at the 1% level. This is consistent with the notion that global banks’ activities have become increasingly alike, possibly as a result of increased competition and crossborder lending. The increase in the cross-country correlation of the credit cycle suggests policy needs an international dimension if it is to curb effectively the credit cycle, to which we turn next. 22  Wilcoxon’s test pools the correlation matrices from the two sub samples and ranks individual country-pair observations by magnitude. If one set of observations features systematically higher cross-correlations, the rank of each of the observations will be higher on average in the pooled sample.

Condition 2: State Monotonicity:  is non-decreasing in  . Condition 3: Uniform Limit Dominance: There exist and such that (1) for all and and (2) there exists such that for all . Condition 4: Strict Laplacian State Monotonicity: There exists a unique . solving Condition 5: Finite Expectations of Signals: Condition 6: Continuity: and density . is well defined. is continuous with respect to signal  Morris and Shin use these to show be defined by Condition 4. Then for any Lemma 1: (Morris and Shin 2003) Let there exists such that for all , if strategy s survives iterated deletion of strictly dominated strategies, then = {Tight} for all and = {Risky} for all . Proof: See Morris and Shin (2003), Proposition 2.2. 26  BIS Review 168/2010  i.e. that agents play cut-off strategies, adopting strategy = {Tight} when in receipt of a , and adopting strategy = {Risky} when in receipt of a “high’ “low” signal . Condition 4 gives the threshold. signal  BIS Review 168/2010  27  Annex 2 International medium-term frequency cycles in real GDP and credit  28  BIS Review 168/2010  BIS Review 168/2010  29  30  BIS Review 168/2010  BIS Review 168/2010  31  32  BIS Review 168/2010  References Acharya, V.V. (2009), “A Theory of Systemic Risk and Design of Prudential Bank Regulation”,Journal of Financial Stability, Vol 5, 3, 224–255.
(a)  (b)  34  Sample includes Bank of America, Barclays, Bank of Ireland, Citigroup, Goldman Sachs, HSBC, JP Morgan Chase & Co., Lloyds Banking Group, Morgan Stanley, National Australia Bank, Northern Rock, Royal Bank of Scotland and Santander. 2012 data to date. BIS central bankers’ speeches

Jean-Pierre Roth: Demography and economic policy – the challenges ahead Summary of a colloquium by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, on “Chances et défis du vieillissement” (opportunities and challenges of demographic ageing), at the University of Geneva, Geneva, 10 November 2006. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  What will Switzerland look like in 2050? The demographic changes under way will have a strong impact on the future demographic landscape, with regard to both the working population and the older age segments. The ageing society poses two major challenges for economic policy: ensuring the production capacity of the Swiss economy as well as the continuance of the social security scheme. To address these challenges, an economic policy that promotes productivity increases while guaranteeing economic growth must be implemented with immediate effect. In line with this economic policy, adjustments must be made to our social security system.
The 1999 national budget estimates that in 20 years the central government’s net wealth will have risen to 120–130% of GDP. Financially, the state will thus be well equipped to cope with the higher expenditure associated with an ageing population. So far this year, the oil price has averaged slightly more than NOK 80 per barrel. The chart shows allocations to the Petroleum Fund with oil prices of NOK 110 and NOK 90 per barrel in the years ahead. An oil price of NOK 90 will alone result in a substantially smaller surplus than previously anticipated. In this scenario, the Petroleum Fund will peak at 75% of GDP in 2015. The bottom line in the chart shows a different scenario. We are still assuming an oil price of NOK 90 per barrel – in other words, one that is not especially low under present circumstances. In addition, we have assumed a further reduction in the budget surplus, equivalent to 0.5% of GDP, each year for the next 10 years. The combined effect is that after 10 years the budget surplus will have declined by about 5% of GDP compared with the other calculations. BIS Review 20/1999  14  This may seem substantial, but is no greater than the changes in the budget balance that we have seen previously. In the previous downturn, the government reduced its surplus by slightly more than 5% by means of an active countercyclical policy – and that was only during a five-year period.

If oil prices remain low, it may quickly become necessary to take a critical look at the scale of welfare schemes and public sector services, and it may also be necessary to increase taxes. If, later in the business cycle, measures are called for to curb unemployment, they should be designed to be readily reversible and in such a way that they do not erode government finances in the long term. Conclusion By way of introduction, I posed the following question: is our economy sufficiently robust to cope with the fall in oil prices without a new round of major structural adjustments? Our financial system is in a stronger position to cope with a new downturn than it was in the 1980s. We have avoided a debt bubble of the scale we witnessed last time. However, I am in doubt as to the financial industry’s long-term restructuring capacity. Norway must endorse the development of a new architecture for the global financial system. This is a demanding and long-term process, and we cannot expect all the problems to be solved over night. On the other hand, if we are to have any hope of a more stable and predictable world economy, the only real alternative is to enhance international codes for financial markets. We have observed that confidence in the krone is fragile. In order to restore confidence and maintain a stable exchange rate, monetary policy must be a credible anchor for expectations of continued low price inflation.
No one dared to lend money to anyone else because of fears that the other party could go bankrupt and the money that had been lent would disappear. What triggered the financial turmoil almost two years ago was problems in the US housing market. After several years of rising rapidly, house prices began to fall in autumn 2006. At the same time economic activity in the United States began to slow down. An increasing number of borrowers experienced difficulties in paying their interest and instalments. This applied in particular to borrowers with subprime loans. Mortgage institutions had often packaged subprime loans together with other loans in what were known as structured products, which had been sold mainly to investors in the United States and Europe. When credit losses increased it was difficult to determine who owned the high-risk assets and how large these risks were. But the underlying causes of the current crisis are more than just subprime loans and the new financial products. One important cause is the imbalances in the global financial system that have developed over a long period of time. Savings have been too small in the United States and too large in China and the oil-producing countries. The United States has had large deficits in its current account while other countries have had large surpluses. At the same time, monetary policy has been very expansionary in the United States, with low interest rates.

International developments will be weak this year The world economy was in a slowdown phase even before September 2008. Since then the deterioration in the world economy has been rapid. All of the large, developed economies are now in recession. During the fourth quarter of last year GDP growth in the United States and the euro area fell by around 6 per cent calculated on an annual rate. In Japan the fall was even greater, more than 12 per cent calculated on an annual rate. In the wake of the weak development households and companies have become more pessimistic about the future. Confidence indicators have been in free fall and are now at alltime lows in many countries. For example, the purchasing managers index has never before been so low. Share prices have largely halved since the top levels in 2007. The great uncertainty is also reflected in the large fluctuations in stock market rates. For the world as a whole we are now expecting more or less zero growth this year. Growth and developing economies appeared for a long time to be coping relatively well. But they have now also been affected by the crisis. In China, growth slowed down significantly during the final quarter of last year. The oil-producing countries in the Middle East and Russia have  BIS Review 25/2009  3  also experienced a sharp slowdown in economic activity. A few years ago GDP growth in the growth and developing economies was on average around 7 per cent a year.