samchain/econo-pairs-v1 huggingface dataset:
The interaction between price stability and financial stability I think that probably the main challenge that emerges from the recent crisis is in the conduct of policies by central banks – and in particular in the interaction between the two key objectives I mentioned above, price stability (PS) and financial stability (FS). Let me begin by discussing the interaction between financial and price stability in normal times, that is, before an event leading to a period of financial turmoil like the one we witnessed in late 2008. In many cases there is no conflict between setting short term interest rates to pursue financial stability and price stability. For example, faced by a change in future income perception that leads to higher consumption, debt levels and rising inflation, rising rates will be conducive to both PS and FS. In several other cases, however, the optimal short term policy decision for FS and PS conflict and additional tools are required. I will argue that these cases fall into two broad categories. The first is when the monetary policy framework itself can amplify financial vulnerabilities. Financial agents take the distributions of asset prices into account when determining their risk exposure, and as such, they adjust their portfolios according to the policy framework. The problem arises because policies cannot always bring stability when faced with unusual  4  BIS Review 76/2010  shocks, which may even require changes in the policy regime. There are some important examples of this. One example is currency mismatches.

Thus, for financial institutions with insuperable solvency problems, it is proposed that the appropriate rescue solution be implemented. For other institutions, that are solvent, but in difficulties that make a strengthening of their capital advisable, many governments have made capital available to them through shares, or other debt instruments that are, for regulatory purposes, deemed to be capital, such as preference shares. Apart from capital strengthening, and in order that solvent institutions should start to function again as normal and have access once more to financial markets that have remained blocked, government guarantees are going to be granted for issues of bank debt. This latter line of action, i.e. that relating to the availability of liquidity and financing, has been supplemented in the case of Spain by the purchase of highquality assets. Finally, and in order to boost the confidence of depositors, practically all countries have increased the amount covered by deposit guarantee schemes and have proposed reducing the period within which such deposits must, where necessary, be returned to depositors. The Spanish government has prepared a roadmap that envisages all these actions. It will be implemented not so much to alleviate solvency problems, which have not materialised in our country, as to help restore confidence and facilitate institutions’ access to financing. The ultimate aim is to avoid institutions’ financing difficulties being the cause of a reduction in lending to firms and households.
BIS Review 65/1008  9  There are signs of a cooling housing market throughout the country. House price inflation peaked about a year ago. For Norway as a whole, house prices have remained approximately unchanged over the past twelve months. There are nevertheless regional differences in house prices. House prices are rising fastest in Rogaland, and falling fastest in Hordaland and the inland regions. Housing investment gradually slackened through 2007, reflecting higher interest rates, rising inventories of unsold homes and increased construction costs. Several large residential construction projects have now been shelved. We also expect commercial property starts to show a gradual decline. 10  BIS Review 65/2008  Developments in capacity utilisation abroad have an impact on capacity utilisation at home. After several years of strong growth in the world economy, growth is slowing in a number of countries. Growth in the US seems to have come to a halt, and there are fears of a downturn. Growth is also slackening in many western European countries, but emerging economies such as China and India are still growing at a brisk pace. Inflation is picking up in many countries due to rising food and energy prices. Central bank key rates have been cut in the US and the UK to address deteriorating growth prospects. In the euro area the interest rate has been kept unchanged, while the Swedish central bank has increased its interest rate. Developments in the world economy will affect the Norwegian economy.

Since end-June 2007, international money and credit markets have been marked by volatility, illiquidity and reduced risk-willingness. The problems started in the US housing market, but rapidly spread to other financial market segments. Banks, funds and financial undertakings had to bring back on their books loans from bond markets, they started to question the financial position of counterparties and held on to their money. This led to a marked increase in premiums on interbank loans. When the banks no longer wanted to provide loans to each other, many central banks provided liquidity for an extended term and eased collateral requirements. In periods, Norges Bank has also provided extra liquidity to Norwegian banks. This has reduced swings in the interest rate that banks demand for giving loans to one another. Norwegian banks rely to a large extent on foreign funding. This is why the increase in money market premiums in the US and Europe quickly fed through to Norwegian interest rates even though Norwegian banks are profitable, retain confidence and have limited loss exposures. Banks and investors, both in Norway and internationally, now apply a higher premium and higher prices for providing capital for acquisitions, restructuring and investments, and highly leveraged companies have to pay high risk premiums on loans. It has become more difficult to procure financing. BIS Review 65/1008  11  Household credit growth has eased slightly, but remains high. Corporate credit growth is also high.
Sources: The OECD and the World Bank WDI  Figure 6 Unemployment and labour force in Sweden and the USA Percentage of labour force and percentage of population 16  74  14  72  12  70  10  68  8  66  6  64  4  62 United States, Unemployment (left scale) Sweden, Unemployment (left scale) United States, Labour Force (right scale) Sweden, Labour Force (right scale)  2 0 06  07  08  09  10  60 58 11  12  13  14  Note. Refers to 15–74 age group. Seasonally-adjusted data. Sources: Eurostat and the OECD  16  BIS central bankers’ speeches  Figure 7 Forecasts 2011–2012 for export increase 2012 Annual percentage change, annual average 8  Exports, actual outcome 2012  8  Other analysts The Riksbank  6  6  4  4  2  2  0  0  -2 jan-11  -2 jul-11  jan-12  jul-12  Sources: Respective forecasters (6 of them), Statistics Sweden and the Riksbank  Figure 8 CPIF and trend in unit labour costs Annual percentage change 4  4 Unit labour cost, trend CPIF  3  3  2  2  1  1  0  0 00  02  04  06  08  10  12  14  Note. The trend is calculated using an HP-filter (=1600) on a series extended with the Riksbank’s forecast.

Nevertheless, much of the criticism has been based on this assumption, for instance, the claim that the Riksbank’s policy of leaning against the wind after the crisis has cost 60,000 jobs. As I have shown, the general view among forecasters at the time when the repo rate had been raised to 2 per cent was that it would be necessary to continue to raise the repo rate – and for traditional monetary policy reasons. The increase from 0.25 to 2 per cent was thus not perceived as particularly remarkable or as purely justified by concern for household debt. I also hope I have convinced you that the low inflation rate in Sweden today does not reflect an economy that has developed very poorly since the crisis as a result of misguided, tight monetary policy. On the contrary, the Swedish economy has developed relatively well and has definitely not been in a state of deflation driven by a weak real economy. The main focus for the monetary policy conducted after the crisis has been to support the recovery and bring inflation back towards the target. Giving consideration to the risks linked to developments in household debt and housing prices has been part of the assessment but has not played a major role. The fact that inflation has been low is to a large degree, as always, a reflection of events over the course of time that have been difficult to predict.
Mr. Singer said that the weak-koruna policy has persuaded Czechs that the central bank won’t allow consumer prices to fall, and removed the risk of a slide into a prolonged period of deflation. Central bankers aren’t worried so much about falling prices as about the threat that consumers and businesses will come to expect prices to continue to fall and will postpones their purchases, weakening economic growth and pushing prices down further. “We were afraid of this problem of postponed consumption and investment,” Mr. Singer said. “But people have realized the central bank is not going to allow a deflationary slide.”  BIS central bankers’ speeches  1  Mr. Singer said that retail sales are picking up, driven by higher auto sales, an indication that consumers aren’t postponing purchases in the expectation goods will be cheaper in the future. He cited a decline in the savings rate as another indication that the risk of deflation has been lessened. The central-bank chief said that while food prices may rise at a slower pace in response to a good harvest, he was not worried about that development because people can’t postpone food purchases. Measured according to an EU standard, the annual rate of inflation in the Czech Republic picked up to 0.7% in August from 0.6% in July, and Mr. Singer said he is confident it will rise to the 2.0% midpoint of the central bank’s target range next year, assuming the eurozone follows a “baseline scenario” of a return to modest growth.

Miroslav Singer: Czech central bank head sees lowered risk of deflation – interview in The Wall Street Journal Interview with Mr Miroslav Singer, Governor of the Czech National Bank, in The Wall Street Journal, conducted by Paul Hannon on 11 October 2014. *  *  *  The threat of a slide into deflation or a long period of very low inflation in the Czech Republic has diminished, the head of the country’s central bank said Saturday, although he intends to maintain the weak-koruna policy at least into the start of 2016. In an interview with The Wall Street Journal during the annual meetings of the International Monetary Fund in Washington, Miroslav Singer said he had been encouraged by the stimulus measures announced by the European Central Bank since June, since he had expected it to take longer to react to very low inflation rates. Mr. Singer also said that he was confident the central bank could bring its weak-koruna policy to an end without risking a “snapback,” or a sharp strengthening of the currency. The Czech Republic is a member of the European Union, but has chosen not to use the euro. It does have close economic ties to the currency area and particularly Germany. As a result, low growth and low inflation in the eurozone have been a big problem for the central bank.
The interest rate set by central banks is normally a very short-term interest rate, which in itself has negligible effects on economic decisions. It is mainly expectations about future policy rates that affect market interest rates and thus economic decisions. Most central banks communicate future policy intentions in one way or another. The majority of central banks communicate indirectly through forecasts based on technical interest rate assumptions, and by giving verbal signals about future interest rate decisions in policy statements and speeches. With such indirect communication, the market participants gain information about the sign of future interest rate decisions, but may have less information about the size. Until November 2005, Norges Bank used technical interest rate assumptions in the inflation forecasts, but also on some occasions commented on whether the Bank intended to follow a different policy than what seemed to be reflected in market interest rates. Thus, the Bank gave signals about the sign of future policy intentions relative to market expectations, but not on the size. 3 From November 2005, Norges Bank started to use endogenous interest rate forecasts in the Monetary Policy Report. Norges Bank was the  1  This process has also been acknowledged by the Norwegian parliament: “The majority think that it is a prerequisite for an effective monetary policy that the central bank is open about the interest rate forecasts, and are satisfied with the fact that Norges Bank emphasises this.” (Innstilling frå finanskomiteen om Kredittmeldinga 2007, Innst.S.nr.274, s.11.

On the one hand, European economies are in recession, the US economy has been struggling to return to the path of growth, and more recently, fast-growing economies such as Brazil, India, China, Turkey have also slowed down. In such circumstances, it would be logical for the prices on the commodity exchanges worldwide to fall. But it is not happening. Prices of oil and basic agricultural products are not falling, but maintain the previously achieved high level or even continue to rise. In part, this is due to the overly relaxed monetary policy of the Fed, the ECB and the Bank of England, as well as the debt crisis in the Euro area, which “urge” investors to invest in real goods on the commodity exchanges. The rest is a consequence of the so-called supply shocks, i.e. political tensions in the Arab world and the Middle East, as well as the drought in the countries that are the largest producers of grain. In such conditions, despite the slowdown of economic growth, Macedonia is facing a higher imported inflation. In conditions of such an emphasized economic crisis, how will the monetary policy be put into operation to encourage economic growth? You claim that the NBRM can contribute only by keeping price stability, but obviously it is undermined. Price stability is neither undermined nor will it be. In August and September, a higher than usual monthly price increase for this time of the year was registered, due to one-off factors that I have already explained.
It is worth explaining why the stability of the Hong Kong dollar is so important to our economy, and why it is that we have been able to maintain this stability at a time when the fixed exchange rates of so many other freely convertible currencies in the region have collapsed. We are a predominantly externally-oriented economy, and an economy that comes the closest of any in the world to running itself on pure free market principles. The annual value of our external trade is at least two and a half times that of our gross domestic product: most of it takes the form of re-exports. We import nearly all of our daily needs, including food and water. We export most of our manufactured products, together with a large range of financial and other services. We are an international financial centre with huge capital inflows and outflows, and no exchange controls. In such an economic environment, volatile exchange rates would introduce instability and unpredictability without bringing any corresponding advantages, except possibly to those in the foreign exchange industry. Businessmen would face greater currency risks in their international transactions and would be forced to hedge their considerable currency exposures at great cost. Sharp gyrations in the exchange rate, and the kind of overshooting that we have seen in the recent currency devaluations elsewhere would seriously undermine the stability of our financial system, and confidence in it.

These safeguards will include improvements to cross-market surveillance in Hong Kong, and an in-depth exploration of possibilities for further strengthening the resilience of the currency board system - an exercise which is now making good progress. More widely, we need to continue to develop Hong Kong’s position as a premier international financial centre. Practical measures recently announced by the Chief Executive of the HKSAR will help in this: they include schemes ranging from the upgrading of the security and efficiency of our entire financial infrastructure to the expansion of research facilities in the form of a monetary institute affiliated to the HKMA. The emphasis in all of this is not on intervention, but on facilitation. As a government, we do not direct the form that economic growth should take: we simply strive to provide the best environment that we can to enable growth to take place. In the financial sphere that means a stable currency, a credible and secure banking system, and markets that sustain, rather than undermine, economic development. There is much that we can do - and have done - locally to achieve these aims. But increasingly, the solutions have to be global solutions, because, as the events of the last year have amply demonstrated, some of the most intractable problems facing our financial systems straddle borders and thrive in the cracks and holes between jurisdictions. Globalization - the breaking down of economic barriers - has brought many benefits, particularly to our own region.
Eva Srejber: Sweden and European integration Speech by Ms Eva Srejber, Deputy Governor of Sveriges Riksbank, at the IBC Euroforum: Nordic Banking, Stockholm, 3 June 2002. *  *  *  Let me begin at once by stating the limits I intend to set for this subject in my speech: I intend to focus on financial integration within the EU and to discuss how companies and individuals can benefit from the advantages created by integration in this field. My starting point is, thus, that greater integration in the financial area mainly brings advantages, but there is cause to seek to analyse the forces behind such a development. As different public rules and regulations play an important role for developments in the financial sector, there is also reason to discuss a number of questions of a policy nature that are already on the agenda for a strengthened co-operation within the EU. This is largely a matter of achieving a balance between providing scope for product development and efficiency in the production of financial services in Europe, and creating the right conditions for stability and predictability in the financial system. From white paper to financial action plan Ten years ago, 1992, was the final date for realising the common market in the EU on the basis of the programme in the white paper presented by the European Commission in 1985.

The establishment of a Single Resolution Mechanism Let me turn to your second chosen topic, the establishment of a Single Resolution Mechanism. The Single Resolution Mechanism should be centred in a Single Resolution Authority with a European Resolution Fund at its disposal. I welcome the European Council’s December statement that during the course of 2013, the Commission will submit a proposal for such a mechanism for Member States that are participating in the Single Supervisory Mechanism. The ECB shares the European Council’s view on timing for the Single Resolution Mechanism, namely that it will be required once bank supervision is effectively moved to the Single Supervisory Mechanism. We therefore welcome the European Council urging the co-legislators to examine the proposal as a matter of priority with the intention of adopting it during the current parliamentary cycle. There are four main reasons for a Single Resolution Mechanism, with a Single Resolution Authority at its centre. The first reason is that only a Single Resolution Authority will ensure timely and impartial decision-making focused on the European dimension. In a situation where a cross-border resolution is required, the Single Resolution Authority would avoid national focus and pursue the optimal resolution strategy, thus mitigating coordination problems. The second reason is that the Single Resolution Authority would credibly pursue the least cost resolution strategy, assessing possible cross-border spillover effects and systemic concerns, and ensuring that resolution costs are first and foremost borne by the private sector. It would thereby minimise resolution costs without recourse to taxpayer money.
The practice of banking:  For almost a century after Bagehot wrote Lombard Street, the size of the banking sector in the UK, relative to GDP, was broadly stable at around 50%. But, over the past fifty years, bank balance sheets have grown so fast that today they are over five times annual GDP. The size of the US banking industry has grown from around 20% in Bagehot’s time to around 100% of GDP today. And, until recently, the true scale of balance sheets was understated by these figures because banks were allowed to put exposures to entities such as special purpose vehicles off balance sheet. Surprisingly, such an extraordinary rate of expansion has been accompanied by increasing concentration: the largest institutions have expanded the most. Table 1 shows that the asset holdings of the top ten banks in the UK amount to over 450% of GDP, with RBS, Barclays  BIS Review 140/2010  1  and HSBC each individually having assets in excess of UK GDP. Table 2 shows that in the US, the top ten banks amount to over 60% of GDP, six times larger than the top ten fifty years ago. Bank of America today accounts for the same proportion of the US banking system as all of the top 10 banks put together in 1960. While banks’ balance sheets have exploded, so have the risks associated with those balance sheets. Bagehot would have been used to banks with leverage ratios (total assets, or liabilities, to capital) of around six to one.

Change is, I believe, inevitable. The question is only whether we can think our way through to a better outcome before the next generation is damaged by a future and bigger crisis. This crisis has already left a legacy of debt to the next generation. We must not leave them the legacy of a fragile banking system too. I have explained the principles on which a successful reform of the system should rest. It is a program that will take many years, if not decades. But, as Bagehot concluded in Lombard Street, “I have written in vain if I require to say now that the problem is delicate, that the solution is varying and difficult, and that the result is inestimable to us all.” References Admati, A.R., DeMarzo, P.M., Hellwig, M.F., and Pfleiderer, P (2010), “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital regulation: Why Bank Equity is Not Expensiv” Stanford Business School, mimeo. Arrow, K.J. (1951), “An extension of the basic theorems of classical welfare economics”, In Proceedings of the Second Berkeley Symposium on Mathematical Statistics and Probability, ed. J. Neyman, Berkeley: University of California Press, 507–32. Arrow, K.J. and Debreu, G. (1954) “Existence of an equilibrium for a competitive economy”, Econometrica 22, 265–90. Bagehot, W. (1873), “Lombard Street: A Description of the Money Market”, Wiley & Sons, (reprinted 1999).