samchain/econo-pairs-v1 huggingface dataset:
Ardian Fullani: Monitoring of the economy to be conducted not only in the metropolis but in the regions as well Article from Mr Ardian Fullani, Governor of the Bank of Albania, published in the Ekonomia newspaper, 21 January 2005. *  *  *  Our economy has long ago been integrated in a continuous process of quality and quantity development, including an increasingly wider geographical expansion. Both Communities, bank and business, need to cooperate more closely with each other. In order that this cooperation becomes more efficient, we deem, as Bank of Albania, to play our active role not only through establishing a safe macroeconomic environment, but also by providing a range of other operations that will encourage lending activity of the banking system from one side and impact a more correct tendency of business toward more reliable projects and investments, on the other side. To this end, we estimate in our short-term and medium-term programs to give our regional branches spread throughout the country a different role from the one they played till now. We deem appropriate it’s time now for our branches not to be simply cash storerooms and distributors. Also, we shall try to renounce some operations of non-central banking nature, which gradually shall be absorbed by commercial banks. Our goal is these branches be changed into an advanced model of the Bank of Albania presence throughout various regions of the country.

Let me share a few thoughts on some of the current issues which have a bearing on Asia’s growth and the global environment ahead. Rising global food prices The first, and perhaps most pressing issue that the world faces, is spiraling inflation. Global food prices have spiked in the recent months due to a confluence of factors. Demand has increased to feed a growing global population with a rapidly expanding middle class in the developing Asian countries. This demand is compounded by competing uses for food sources to generate biofuel and feed. Meanwhile, sources of supply have been hit by rising energy costs, increased competition for arable land, and the erratic weather. As a result, prices of many food commodities including wheat, corn, and rice, a staple for all Asians, have soared. The United Nations has declared the drastic increase in food prices “an unprecedented challenge of global proportions” and established a task force to tackle the food crisis. This is indeed a global issue and cannot be resolved overnight. Many of these factors are structural and will take time for the demand-supply equilibrium to be established. On the Asia Pacific front, the Asian Development Bank has recently announced $ million of immediate budgetary support to help countries that have been worst hit by rising food prices. With increasing food prices and high oil prices, mitigating the impact of strong inflationary pressures will remain a key priority for many Asian governments.
Measured against these milestones, I must admit that I am truly impressed by the way Ireland has handled its tough challenges, especially since the beginning of last year: the economy is well on the way to restoring competitiveness, reducing the fiscal deficit (–10.6 in 2011; –8.6 goal for 2012), overhauling the institutional framework and restructuring the banking sector. It is the only programme country that has managed to close its trade deficit and to return to growth last year, even if at modest rates (0.7% in 2011; projections: 0.5% in 2012; 2.0% in 2013). This turnaround would not have been possible without Ireland’s biggest asset: a talented, well-educated workforce. This strength is maybe most clearly reflected in the fact that the export sector has continued to attract foreign investment in the midst of one of the worst crises to hit the world economy in the last century. Structural reforms True, structural reforms are helping to restore competitiveness and flexibility, and Ireland, allin-all, benefited from a much more flexible labour market than, for example, Greece or Spain. It is true that some of the structural reforms will take time to show full effect, but their capacity to improve the situation for ordinary citizens should not be underestimated. Just to give you some examples: the market for legal and medical services is currently being deregulated and made more competitive. This is something that will lower prices for Irish consumers, expand activity and increase employment. In the labour market, an important overhaul of employment contracts has been announced.

Before the EU/IMF programme was agreed, the total Eurosystem loan support for Ireland (combining monetary policy operations to all eligible banks and emergency liquidity assistance from the Central Bank of Ireland) amounted to about 100% of Irish GDP. Our total loan provision now stands at above EUR 125 billion. There are however statutory limits to what the Eurosystem can do, and a clear dividing line between the tasks of a State and the tasks of a central bank. There can also be no doubt that the current amount of liquidity support extended by the ECB and the Central Bank of Ireland  4  BIS central bankers’ speeches  to Ireland’s banks needs to be substantially reduced over time, and we expect that the Irish authorities and the banks are working hard to achieve this. For Ireland’s economy to recover, its banking system must be sound and fully functioning. A virtuous cycle must blossom. That will be difficult to instil with banks that remain dependent on Eurosystem support. With measures in place to break this dependency, the conditions will be in place for recovery. The foundation for this recovery has already been laid. In late 2010, the ECB played a key role in mitigating the challenges facing the banking system, and in designing programme measures to reverse the situation. I hope you share my view that these measures achieved their initial aims: the stabilisation of the banking system.
In any event, I believe the Eurosystem’s current position does not differ substantially from that of those central banks that are immersed in a similar line of thought. Where we may diverge somewhat more is the pace at which we are moving, largely as a result of the different state we are in relative to the scenarios indicated. For instance, in the Nordic countries the diminished use of cash is already a fact. Likewise, means of payment in China  10  https://www.bde.es/f/webbde/SPA/sispago/ficheros/es/estadisticas.pdf. 13  appear to be tending towards concentration in ecosystems managed by a small group of local technological giants outside the traditional banking system. What this discussion shows is the need we central banks have to understand the changes the economy is facing as a result of the digital transformation and, most particularly, to appreciate the scale of their impact on the financial sector. The importance of the functions assigned to us both in monetary policy and in payment systems means our action must always have the broadest consensus and be preceded by rigorous and in-depth analysis. Squaring the rigour of our decisions in areas of undeniable importance for society at large with the flexibility and swiftness of response that a rapidly transforming economy demands poses a challenge. To resolve this challenge we must call on our capacity to anticipate these situations so as to be able to analyse them in good time and in all their depth.

Obviously, it is difficult to decide exactly how much interest rates should be increased in order to ensure that the present surge in the economy does not lead to overheating, particularly since the current monetary policy regime with declared inflation targets has never really been subjected to such a test. We simply do not have any experience to fall back on. However, most people, including the Executive Board of the Riksbank, agree that the current repo rate will have to be raised sooner or later, although opinions differ as to when and how much. Whatever the Riksbank decides to do, the main lesson of the long boom in the USA remains valid: a long period of sound real economic growth is not necessarily the result of any exceptional external events, such as the emergence of a “new economy”. It is just as likely to be the result of a carefully conceived monetary policy which applies an active and sometimes rather forceful policy to make sure BIS Review 128/1999  2  that overheating - and subsequent deep recessions - are avoided. Naturally, a more detailed comparison between the USA and Sweden would have taken into account other differences too, such as the functioning of the labour market. The role of asset prices I should like to devote the rest of my speech to another topical issue in the American debate, and that is the actual and potential role of asset prices in monetary policy.
Until that time, residential construction had been heavily subsidised, mainly via interest subsidy. The interest subsidy meant that the central government guaranteed a low interest rate. During the 1980s, inflation was high, which meant that it was not only cheap to borrow, the loan in principle paid itself off. If the capital investment appraisal were to prove wrong, the local authorities often supplied generous guarantees. The risk entailed in a housing investment was therefore in practice moved from those who built the housing to the taxpayers3. In connection with the crisis at the beginning of the 1990s the interest subsidies were reduced and the public sector ceased providing guarantees for housing investment. This meant that it was no longer so attractive to build housing (Figure 4). Construction has picked up again since 2000, as house prices have risen. However, the response of new construction to price increases has nevertheless been surprisingly slow. One reason for this is that it may only be profitable to build in metropolitan regions and there may be a shortage of space for new building here4 Moreover, it is not unlikely that rent regulations have reduced interest in building new rental properties, which has channelled the household sector’s willingness to pay for housing towards houses and tenant-owned apartments. We thus have a situation where households have had a good increase in income, combined with the fact that it has been inexpensive to borrow, while there has been only a small supply.

But sadly it is a phrase that we are now well and truly stuck with. Like a lot of our operations, Quantitative Easing can seem a bit mysterious and confusing to those not steeped in what central banks do. As much of this confusion arises from a misunderstanding of the Bank of England’s accounts, I am therefore delighted to be speaking to an audience of accountants, who might find this arcane subject rather exciting! In January this year, the Chancellor authorised the Bank to create a new fund – the Asset Purchase Facility – for the purpose of buying assets from the private sector. Any profits on the Asset Purchase Facility are passed to Her Majesty’s Treasury, while any losses are also indemnified by the Exchequer. The accounts are therefore not consolidated with the Bank’s own accounts, as the Bank has no economic interest in the fund. Initially, the Facility purchased commercial paper, funded by the proceeds of sales of shortterm Treasury bills by the Debt Management Office. This asset swap took credit risk onto the public sector’s balance sheet and was therefore more akin to a fiscal operation. But since March, purchases have been on a much larger scale and funded through the issuance of central bank reserves rather than Treasury bills. The bulk of the purchases have been of government bonds, though a small quantity of investment-grade corporate bonds have also been bought.
As a result, the Bank plans to bring the £ billion of lending extended through the TFS onto our balance sheet by the end of 2018/19 the financial year. The additional capital means the MPC could, if necessary, re-launch the TFS in future on the Bank’s balance sheet, cementing 0% as the lower bound. Bringing the TFS onto the Bank’s balance sheet next year will mark the first step in winding down the Bank’s Asset Purchase Facility (APF). After the TFS has been transferred, the APF will fall to £ billion – the value of the government and corporate bonds purchased by the MPC as part of its Quantitative Easing programme. The MPC updated its guidance today on unwinding its asset purchases. Previously, the Committee had noted that it would not begin reducing the stock of assets until Bank Rate had reached around 2%. That reflected the MPC’s preference to use Bank Rate as the primary instrument for monetary policy and its  15  In the run-up to the vote, the Bank undertook extensive contingency planning which included encouraging banks to pre-position enough collateral in our facilities to enable them to draw down up to £ billion in liquidity. The combination of this war chest and coordinated G7 central bank action helped ensure markets functioned normally as the system absorbed a result that had been assigned a 10% probability hours before. And it meant we could credibly communicate to the public that we were well prepared for the result. 16 See https://www.bankofengland.co.uk/letter/2018/banks-financial-framework-june-2018.

Having put in place the pillars of responsible, open financial system, we are ready for deeper Global Financial Partnerships with the emerging economies that will be the most important drivers of global growth in the decades ahead. It is in this context of a confident, open and forward-looking City that the government’s discussions with Europe will take place. ------------------------------------------  12  All speeches are available online at www.bankofengland.co.uk/speeches  12  My Lord Mayor, this evening I have outlined the Bank’s priorities, but unlike a century ago, the Bank’s “policy” won’t be handed down to an unquestioning City. The new finance will develop for the new economy, not in isolation from it. Over the course of this year, Bank colleagues, led by Huw van Steenis, will explore these and other themes in roundtables, workshops and forums with a broad range of stakeholders up and down the UK. While we prepare for great change, we will be guided by one constant: our mission to promote the good of the people we all serve. 13  All speeches are available online at www.bankofengland.co.uk/speeches  13
Testifying to this is the work programme in place in the main international agencies and fora, such as the G20, the Financial Stability Board and the Basel Committee on Banking Supervision. Intense work is under way to introduce major changes into the international regulatory and supervisory framework so as to prevent similar crises from recurring and to improve the financial system’s resilience moving forward. Such changes include most notably the new rules known as Basel III, which alter the regulation of the banking sector at the international level in several fundamental respects: banks will be required to have more and better-quality capital; explicit requirements will be made in respect of liquidity risk; and measures will be taken to mitigate the procyclical behaviour of financial activity. Further, the FSB is working on the treatment of systemic banks, i.e. those considered too important to fail due to their size, the level of complexity of their operations or their interconnectedness with other financial system participants. In future, these banks will have to meet greater regulatory and supervisory demands, which will need to be adapted to the type of activity, complexity and structure of each bank. Headway has been made and is being made in many other areas, such as remuneration in the financial sector, the regulation of rating agencies, etc. Generally speaking, Spain has much to learn from other countries about economic policies.

Specifically, in our case, they do not always draw a distinction between regional and central governments, or between the government and the opposition. What they see is, simply, Spain. Taking these lessons on market behaviour to heart is very important for all countries, but all the more so in a country such as Spain which, owing to the systematic and growing build-up of current account deficits since 1996, has had to resort to external financing. Accordingly, it is vital to transmit confidence to those who finance us. We’re now moving in the right direction. In the space of three years we’ve moved from a current account deficit of around 10% of GDP to one below 5% this year. And in the case of the budget deficit, we’ll see a decline from over 11% last year to 6% next year. Once the adjustment is over, the Spanish economy will once again outgrow the biggest economies in the euro area, as foreseen by most international institutions. Yet we should not be complacent, but carry on pushing structural reforms through. You’ll have noted that the markets behave like people: sometimes they give reasonable advice, sometimes they do so late, sometimes they make mistakes, and sometimes they have a short memory. And they waver between greed and fear, depending on whether they’re preoccupied with returns or with risk. We’re now witnessing a “flight from risk”. But you’ll no doubt recall the frenzied “search for yield” on financial markets worldwide in the decade prior to the crisis.
Prices rose by around 3 per cent annually for a long period, but since 1995 they have been falling by about 6 per cent annually. This kink point coincides with the dismantling of the restrictions on textile trade and with a period of rationalisation in retail trade in Norway. The rapid growth of production in China, India and other newly integrated economies has led to a substantial rise in demand for oil and other raw materials. At the same time, increased trade has engendered higher demand for shipping services and favourable freight rates for a period. BIS Review 39/2006  1  These changes have provided Norway with increased revenues thanks to a remarkable strengthening of our terms of trade. Prices for imported goods are falling in relation to prices for goods we export. The impact of the rise in oil and gas prices is particularly strong, but the terms-of-trade gains on goods in the mainland economy have also been high. The situation in Norway differs from that of its Nordic neighbouring countries. Sales of Swedish and Finnish high-tech products are growing strongly in terms of volume, but prices are falling. Denmark has a diversified business sector, which is moving on a steady path overall. The high energy prices have contributed to increased cross-border capital flows as income is transferred from oil importers to oil exporters. Consequently, a savings surplus has been building up in oil exporting countries such as Norway.

Indeed, some sort of an intellectual vogue is flourishing, which contends that, in light of past experiences, any banking crisis is bound to have severe adverse economic consequences. You have those, the optimists, who predict a Swedishtype of crisis. And you have those, the pessimists, who allude to Japan's "lost decade". If referring to the past is of any use, it is precisely to learn from past errors. As a result, any comparison is bound to be misleading. Not only is today’s economic situation critically different. It is also addressed very differently. Let me insist on one key difference, which has to do with policy reactions to the crisis. They have been extraordinarily rapid, massive and vigorous. We have learnt from past crises, especially from the long adjustment Japan has been through after the burst of the asset price bubble in the late 80s. Let me also mention that macroeconomic policy instruments are available and could be used should output decline dramatically. The outlook for financial regulation A major consequence of the crisis already apparent is the growing consensus around the need for a fundamental review of the foundations of financial regulation. The crisis has also rekindled concerns about the structure of supervision. As you know, at the French President’s instigation, huge efforts are made to think about what is termed now a “new Bretton Woods”. Beyond these ambitious words, I do believe it to be useful to take a fresh look at the existing financial regulation.
Regardless of what significance one attributes to the financial crisis, it is clear that the downward trend in interest rates began much earlier. Back in the period prior to the financial crisis, the Federal Reserve Governor of the time, Alan Greenspan, described the low longterm US interest rates as a mystery. Growth, savings and technology determine the real interest rate Regardless of which explanation one concurs with, most people consider the long-run global real interest rate to be primarily governed by expectations of potential growth, the propensity to save and technological advances. I will therefore first describe how the various factors can influence the real interest rate. I will then discuss possible explanations as to how growth, propensity to save and technology may change. Lower potential global growth gives lower global real interest rate According to economic theory, expected growth should play an important role for the development of the real interest rate; the lower the growth, the lower the real interest rate. International organisations such as the IMF and the OECD have made downward adjustments to their assessments of the global growth trend in recent years. This could lead to a lower real interest rate. At the same time, one can note that global growth was both stable and relatively high during the 15–20 years prior to the financial crisis. It is thus not possible to explain the long-term fall in interest rates prior to the financial crisis as due to lower global growth.

There is thus good reason to assume that demographical developments have contributed to an increased propensity to save in the world and thus to a lower real interest rate. 5  See Rogoff (2015). BIS central bankers’ speeches  3  The demographic effect on saving in China is worth mentioning in particular. The single-child policy contributed to a severe decline in the birth-rate. At the same time, life expectancy increased. The combination of weak social safety net and fewer children to provide for the elderly was probably an important explanation for the increase in saving in the Chinese economy. As China has become increasingly integrated into the global economy, saving in China has also been increasingly channelled to other parts of the world for investment. Increased propensity to save in many emerging markets Many other emerging markets have also increased their savings, but partly for other reasons than a change in demographics. Experiences from the Asian crisis in 1998 contributed to many emerging market countries’ central banks building up their currency reserves to be able to withstand future currency outflows. The increased demand from these countries for low-risk assets, such as government bonds, led to yields being pushed down at the end of the 1990s and until the years prior to the financial crisis. The rising demand for safe assets also contributed to an increase in the differential between the risk-free rate and the rate on higher risk investments.