samchain/econo-pairs-v1 huggingface dataset:
One fine day we can see hot money flowing into the country on account of foreign investors’ confidence in our economic growth prospects. Not long after, we can easily witness a reversal of such flows simply because investors have become more risk averse on emerging markets overnight. Such volatilities are not conducive to a stable development of any economy, and greater exchange rate flexibility alone is not a universal cure. Indeed, the risks and volatilities that accompany financial globalization, which small developing economies face today, are of the unprecedented scale that advanced economies never had to face in their early stages of development. To withstand volatility and safeguard against financial instability that may eventually disrupt real sector activities, Thailand requires stronger resiliency for the domestic economy. This means the significant ability of the domestic economy to adjust flexibly in keeping with changes in the financial environment. This also implicitly means that the economy should be able to depend more on domestic demand as growth driver. Meanwhile, policy and regulation must also be designed in such a way that can help foster better risk management, deal with market excesses, and reduce distortions and unproductive risk-taking behaviours in the economy. Over the longer term, competitiveness must come from productivity growth so that increases in wages and employment can be sustained. What I have said are the key components of an ideal economic policy package not just for Thailand but also for any emerging market economy.

On trade and financial integration, we all have to wait for the resolution of WTO negotiations. In the meantime, Thailand and ASEAN have made progress on a number of free trade arrangements with Japan, China, Korea, Australia, and New Zealand. Within ASEAN, more progress on the ASEAN blueprint, which lays out the strategic plan to achieve further trade and financial integration within 2015, is in the pipeline. On this topic, I also like to share with you an observation that Asian emerging markets, in general, rely increasingly more on trade integration because it is judged to be a safer mode of risk-sharing with the world. While benefits from trade integration are universally appreciated, net benefits to overall economic development from the international financial integration have not been so apparent in Asia. As a result, while the pace of financial integration has far outstripped trade integration in advanced economies, it has only managed to keep pace with trade integration in emerging markets. Turning to the financial sector side, nowhere are the international rules of the game closer to my heart than the international standards for banking supervision. Early this year, the Bank of Thailand’s capacity and performance in supervising financial institutions  BIS Review 107/2007  3  has been assessed against international best practices in the context of the joint IMF/World Bank Financial Sector Assessment Program or FSAP. This FSAP assessment confirmed the strength and capacity of our supervisory process, which have been significantly strengthened over the past decade.
Therefore, only through proper Pillar II supervisory review can we understand the true risk profile of banks, so that capital requirement is set in line with the risks assumed by banks. To carry out this task, the authorities need to have the right prudential rules in place, as well as the supervisory capability and capacity. At the Bank of Thailand, we are developing prudential standards and risk-focused on- and off-site examination practices and manuals so that each supervisor can work on a common structured approach to risk analysis. Moreover, a lot of resources have gone into supervisory training to equip our supervisors with the necessary tools and build up their sound judgment for the implementation. In parallel, the Bank of Thailand has proposed the New Financial Institutions Businesses Law to the Parliament to give us the necessary legal basis to implement both effective banking supervision and Basel II. To foster Pillar III market discipline enforcement, the authorities are working on an appropriate safety net to replace the blanket guarantee that undermines the functioning of the Pillar III. It’s obvious that without lifting the blanket guarantee, market discipline will not work no matter how much disclosure is required. At present, the Ministry of Finance is in the process of reviewing the draft legislation on Deposit Insurance Agency before submitting it to the Parliament.

This is then followed by a discussion on the authorities’ major policies to further strengthen financial institutions’ positions in view of more intensified competition and changing financial environment, including the implications of these policies. Finally, I will conclude this morning’s talk by highlighting some challenges and benefits of capital market development for the banking sector. The Thai financial system consists of four main institutional categories, in the order of their importance: the banking sector, the capital market, specialized financial institutions and non-bank financial intermediaries. The first two categories are the backbone of the Thai financial system, while the third provides funding for specific developmental purposes in accordance with the government policy, and the last supplements the others. Despite the stock exchange boom last year and the pick up of the bond market in recent years, the banking sector remains the primacy of our financial system in every sense. Not only does it provide the bulk of lending that amounted to about 5.5 trillion baht as of end-2003, or equivalent to 93 percent of GDP, the banking sector also mobilizes savings from the public and provides means of payment and settlements that sustain the well-functioning economy. With the recapitalization effort and commendable operational improvement, the banking sector has emerged much stronger after the 1997 crisis, with all performance indicators pointing to the direction of resiliency. The banking sector’s net profit has turned positive for the past three years; this figure more than doubled in 2003 from the previous year.
• In recent years, in order to meet their price stability targets, many central banks have pursued a very expansionary policy, including low or even negative policy rates, as well as purchase programmes of securities. These policies have attracted criticism, saying they increase inequality, but I disagree. • Given the weak trend in growth in many countries, a less expansionary monetary policy than pursued during recent years would have led to higher unemployment than was the case. In that sense, monetary policy could be argued to have contributed to lower income inequalities, as unemployment could lead to large negative effects on household income. Many of those households, who would have experienced unemployment, would then have fallen to lower income deciles, contributing to higher income dispersion. Most studies that include the labour market effect come to the conclusion that the overall effect of expansionary monetary 1  See Deutsche Bundesbank (2016). 2 See Deutsche Bundesbank (2016). 2 [5]  policy on inequality is that it slightly decreases it. Or in short, the dampening effect of lower unemployment offsets the effects from higher share prices. But the overall effect seems, if any, to be small. • To sum up, the very expansionary monetary policy conducted during recent years in some countries could be argued to have had a positive net effect, albeit small, on equality. The positive employment effect normally seems to dominate over the negative effects 3. • We at the Riksbank don’t per se take equality into consideration when taking monetary policy decisions.

The decline of labour market institutions includes lower trade union membership, which reduces the relative bargaining power of labour, and more flexible labour market institutions that can pose challenges See, for example, the effects of the monetary policy pursued by the Federal Reserve in connection with the financial crises in Bivens (2015), the effects of monetary policy in the USA since 1980 in Coiboin (2016), the effects in advanced economies since 1990 in panel data-analyses in Furceri et al. (2016) and effects of the monetary policy conducted by the ECB in connection with and after the financial crises, with a focus on Germany in Bundesbank (2016). 4 One example is that a decline in trade union membership (union rate) reduces the relative bargaining power of labour, exacerbating wage inequality (Frederiksen and Poulsen 2010). Another is that more flexible labour market institutions (although positive for reallocating resources to more productive firms and enabling firm restructuring) can pose challenges for workers, especially those with low skills, and hence play an important role in explaining inequality developments (Alvadero et al 2013). 3  3 [5]  for workers with low skills. Technological progress combined with globalization seems to have played at least some role in increasing inequality within countries. • The discussion of the effects of globalization is interesting. Globalization has for long been a natural part of the Nordic economies. Our dependency on foreign trade is much higher than the global average.
I will discuss the progress ASEAN is making towards a single market and production base, which will create a more seamless marketplace for businesses. BIS central bankers’ speeches  1  Third, ASEAN is opportunity. I will focus on the significant investment opportunities in ASEAN, especially in the area of infrastructure. Resilience: managing inflation and capital inflows 7. Let me begin by touching on ASEAN’s resilience in the face of external shocks. The Asian financial crisis of 1998/99 was a life-changing experience for many countries in the region. They were badly affected by the crisis and resolved never again to be so vulnerable. Macroeconomic policies have become more sound, financial regulation and supervision has tightened, national balance sheets strengthened, structural reforms stepped up, and corporate governance enhanced. 8. The ASEAN countries consequently showed remarkable resilience in the recent crisis. While credit tightened and trade plunged during the height of the crisis, there was no systemic financial fallout, especially in the banking industry. The region rebounded strongly, with the ASEAN-5 growing by 8 per cent in 2010. This year, growth is expected in the range of 5 to 6 per cent. 9. But strong growth has come with a new set of challenges. ASEAN and the rest of Asia are now grappling with rising inflation. Consumer prices are forecast to increase by 5.1 per cent in the ASEAN-5 this year, compared to 3.8 percent in 2010. Several factors underpin this. 10. First, elevated food prices.

The aim is to  BIS central bankers’ speeches  3  provide financial institutions operating in ASEAN better access to the entire ASEAN customer base, and facilitate regional expansion. 26. In addition to facilitating internal integration, ASEAN has been active in linking up with other Asian economies through its strategy of open regionalism. ASEAN has a number of Free Trade Agreements with key Asian economies, including China, Japan, India and Korea. These pan-Asian linkages enable ASEAN to serve as a springboard for investors seeking access to key markets in Asia. 27. Indeed, measured by the degree of intra-regional trade, Asia is already the second most integrated region in the world, after the European Union. And ASEAN is at the nucleus of this expanding network of trade and transport connections spanning Asia. Opportunity: investment in infrastructure 28. A resilient and integrated ASEAN offers considerable investment opportunities, especially in infrastructure. 29. The demand for infrastructure investment in the region is significant. A report released by the Asian Development Bank Institute (“ADBI”) estimates that the total investment needs for national infrastructure development in Asia, from 2010 to 2020, will total about $ trillion, or an average of $ billion per year. 30. But supply – in terms of actual public and private infrastructure investment – has not matched demand. The World Bank has estimated that private sector investment into Asian infrastructure from 1990 to 2008 totaled just $ billion or an average of $ billion per year.
The crucial and unique advantage of monetary union is the exchange rate certainty it will bring throughout the euro area - not just the reasonable de facto stability that can result from each EU member state individually pursuing disciplined macro-economic policies in parallel, and which has in practice been achieved within much of Europe for quite long periods within the framework of the Exchange Rate Mechanism - but actual, and in principle permanent, exchange rate certainty. There is no doubt that this is a very real advantage. One can argue that exchange rate certainty is not an essential complement to the European single market - any more than exchange rate fixity is essential to achieving the benefits of free trade more generally. But there is no doubt that intra-European exchange rate certainty will - through the intensified competition resulting from greater transparency of prices and lower transaction costs, through broader and deeper capital markets, and through the associated improvement in economic resource allocation - substantially enhance the macro-economic benefits to be derived from the single market. Whether or not it is essential, therefore, exchange rate certainty is very desirable from this perspective. The potential drawback of monetary union can also be simply stated, though it is more difficult to assess.

The irony, of course, is that this country itself will not be a part of that first wave. That is a disappointment to some, but a relief to others - a point I’ll come back to - but, whatever view one takes about that, no-one, I think, can fail to recognise the huge achievement of all those who have laboured, with such determination, for so long, and against formidable difficulties, to bring the venture to this point, and I take my hat off to them. In the circumstances, Mr Chairman, I could hardly choose to speak about anything else this morning. The advent of the euro, on this broad basis, will, of course, have profound effects on financial activity, and on both providers and consumers of financial services, all around the world - including in our Mediterranean partner countries. And I should like to take this momentous development, in the broader context of the evolution of the European Union, as my theme. I recognise at the outset that the EU is, fundamentally, about politics, inspired by the need to ensure that Europe is never again devastated by war. I am only too happy to leave the debate about what that implies for the political organisation of Europe - including the relationship between European institutions and the individual member states - to the politicians. My interest is in the economic dimension of Europe - though I realise of course that economics and politics can’t in practice be separated quite as neatly as this distinction suggests.
At that time, there was a lack of confidence in both monetary policy and fiscal policy. The costs proved to be substantial. Unemployment increased more in line with that experienced in some European countries today. However, when the financial crisis reached Norway in 2008, our country was in a particularly favourable position. A long period of substantial petroleum revenues – and a clear savings plan – had provided us with considerable leeway. As a result, fiscal policy could also be put to effective use during the downturn. The guidelines stipulate that the government budget deficit shall over time be equivalent to 4 per cent of the capital in the Government Pension Fund Global, – more in bad times, less in good times. Chart 8: Fiscal policy. Change in the non-oil budget surplus from 2008 till 2010. In billions of NOK A fall in output and employment automatically leads to reduced taxes while unemployment benefits increase. An important aspect of the fiscal rule is that it includes a mechanism whereby these effects also translate into a weaker budget balance. These automatic stabilisers generated strong impulses through 2009 and 2010. The decline in output and employment automatically triggered a reduction in taxes and an increase in transfers of more than NOK 40 billion for the two years as a whole to the benefit of households and firms. The increase in the Government Pension Fund Global provided, under the fiscal rule, room for a NOK 25 billion increase in spending.

The social partners can apply a low and stable rate of inflation when they negotiate the share of economic growth to be taken out as real wages and set their ambitions with regard to employment. The guidelines and the financial crisis The financial crisis in 2008 put the economic policy guidelines to a severe test. The interest rate cuts that followed from the inflation target led to a reduction in households’ annual interest expenses of around NOK 40 billion. The krone acted as a buffer. The burden on leveraged companies was eased and many investment projects became profitable in an environment of lower interest rates. Monetary policy made a substantial overall contribution to Norway’s resilience to the crisis. 3  Speech delivered at the Petroleum Seminar at the Norwegian Association of Economists on 2 November 1988. 4  BIS central bankers’ speeches  Chart 6: Real interest rate. Per cent. August 1987 – February 1990 and June 2008 – December 2010 Chart 7: Registered unemployment. Per cent. August 1987 – February 1990 and June 2008 – December 2010 Well anchored inflation expectations made monetary policy effective – the reduction in Norges Bank’s key policy rate was perceived as a decline in the real interest rate. Other central banks experienced that there was little scope for reducing the real interest rate to a sufficiently low level. This downturn contrasts sharply with the downturn in the 1980s when the interest rate had to be maintained at a high level to defend the krone exchange rate.
UK banks, in particular, have sizeable direct investments in the US and large cross-border exposures to US banks and corporates. Cross-border exposures to US non-bank borrowers stand at around $ bn, more than 50% higher than the equivalent exposures to the rest of Europe, while the total exposure of UK banks to the US amounts to $ bn, or 8% of UK GDP. Close ties in financial markets parallel the strong links in other sectors. Whether it is Grand Met seizing the Pilsbury Doughboy or Ford making off with Jaguar and Aston Martin, there has been a significant and increasing flow of direct investment in both directions across the Atlantic. The close correlation between movements in the FTSE and Dow is testament to the links between the US and UK corporate sectors. Given the strength of these ties, UK banks and investors are inevitably vulnerable to a US slowdown. The scale of UK exposures to the US helps to give some dimension to the scale of this risk. An analysis based on the market ratings of borrowers suggests that the statistically expected annual losses on UK bank's exposures to the US are likely to be around $ or about 1% of UK exposure. In principle, banks should have fully anticipated these losses in their loan pricing and general provisioning. But bank capital is there primarily to absorb unexpected losses, for example the consequences of an unexpectedly deep US recession.

After the end of our net asset purchases, the primary instrument to steer our monetary policy stance is again our key interest rates. And as far as their path is concerned, we continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. This rotation of instruments from net purchases to the rate path has been implemented in such a way as to preserve our accommodative monetary policy stance. We have thus not tightened our monetary policy. Moreover, we have made it clear that, in any event, we stand ready to adjust all of our instruments, as appropriate, to ensure that inflation continues to move towards our inflation aim in a sustained manner. President Mario Draghi always stresses that the toolbox is full. But with interest rates at or even below zero and the asset purchase programme at its self-imposed limits, what else is really left? If there is a problem, there needs to be a careful assessment to establish the cause. A financial shock, for instance, is something different from a slowdown in growth for fundamental reasons. In the case of an economic slowdown, interest rates are generally the instrument of choice. If the euro area economy were to slow more sharply, we could adapt our forward guidance on interest rates and this could be complemented by other measures.
Without sufficient social acceptance this debate will obviously not even be joined, so it is very important to clearly underline the objectives pursued which I’ve repeated ad nauseam in this speech, but which I shall attempt to express again in a different way so as not to tire you. We should all agree that the best protection against unemployment is not that which concerns itself with subsidising the unemployed, but that which ensures that the majority do not lose their job. We should admit that it is useful to allow employers to improve their productivity because that way we will see higher real wage growth. And, finally, we should let workers take the opportunity to switch to better-paid jobs without losing a substantial part of their protection in the event that they lose such jobs. You will have realised that my approach to the debate on labour market reform is far removed from that of those who confine it to the question of whether or not to lower dismissal costs. In my view it is a mistake to debate cheaper firing alone, and I believe that we can only make headway if we focus on finding formulae that allow us to increase productivity, to reduce the numbers of unemployed and to improve workers' wages. The fact that Spain is today more advanced than other European countries in many areas that I mentioned at the start of my speech should not let us forget that there are still some fields in which we can learn from others.

It is precisely this attitude of having learnt from others, and made the consequent reforms, which largely explains the positive performance of the Spanish economy in recent decades. In my opinion, the time has come to do the same (to learn and to reform) with labour market institutions which, as systematically stated by international organisations, are the major structural difference remaining between us and the more developed countries. We must acknowledge that the task is not an easy one. Apart from convincing people about their necessity, something historians and economists can help do, the skills of many others will be needed to design and implement the reforms. One thorny issue is how to set some changes in motion immediately and, at the same time, be sensitive to what may be seen as an alteration of established rights. Political acuity is crucial to resolve these problems, as indeed it is also to make the interests of the different groups of workers compatible with each other. But it should also reassure us to know that the reform toolbox is full of possibilities: calendars, compensation, incentives, etc. Lawyers also have an important job to do, since the problem with all structural reforms is that they alter the status quo and, accordingly, it is essential to find legal formulae that circumvent the obstacles that may arise in their approval and implementation.