samchain/econo-pairs-v1 huggingface dataset:
In view of the high growth rates in recent years and considering that we had moved towards a situation where resources were becoming increasingly strained, we in the central bank concluded last autumn that it would be healthy for the Swedish economy if activity were to slow down somewhat to a more sustainable rate. In principle, an economic slowdown to a more sustainable growth rate can happen either as a spontaneous slackening of activity, for instance coming from an international disturbance, or via a monetary policy adjustment, or from a combination of the two. For a while now there have been clear signs of a slowdown in the U.S. economy. In the Euro area, too, activity has been somewhat weaker than expected. In Japan it looks as though a recovery will be further delayed on account of the problems that have already beset the country for a long time. Moreover, the weaker growth in the United States may have a regional effect on Southeast Asia. Accordingly, it is now becoming increasingly clear that a global economic slowdown is tending to adjust the expansion of demand in the Swedish economy towards a more sustainable growth path. However, it remains to determine the extent to which the international slowdown will sufficiently dampen the previous unduly rapid expansion in the Swedish economy. On the other hand, it cannot be ruled out that the downturn in the U.S. economy will be more pronounced than various observers count on at present.

Although we are also able to influence inflation in the shorter run, doing so is normally inappropriate because it is liable to result in large fluctuations in production and employment. Of course the rule is not applied mechanically. The basic intention is to stabilise inflation around the target and at the same time avoid unduly large fluctuations in production and employment. We tend to disregard economic shocks with effects on inflation that can be assumed to be only transitory. Moreover, there may be grounds for heeding the expected course of events beyond the regular target horizon. There may be a case for adjusting the repo rate immediately if there are already strong reasons for expecting a marked increase or decrease in inflation directly after the two-year horizon. Another point to remember is the Riksbank's mandate to promote a safe and efficient payment system; problems in this context may call for interest rate adjustments even though the inflation target is not threatened. Such adjustments may be needed both to prevent potential risks from building up in the payment system and to moderate effects of problems that have already arisen. However, departures of this type from the normal decision rule should be made restrictively. Moreover, deviations should be stated clearly, and carefully justified. Favourable economic development over several years Under the new regime the Swedish economy has experienced several years of strong growth. Since the upturn began in the summer of 1993, the annual GDP growth rate has averaged around 3 per cent.
Currently, the amount of spare capacity appears to be close to historical averages, which is not what we might expect when the economy is in such an early stage of recovery from recession. This, and other evidence, casts doubt on the degree of spare capacity in the economy and on how significant this factor will be in dampening inflation from its currently elevated level. 10  Business failures in the recent recession peaked at below 1% of firms, compared with 2.6% in the early 1990s and 1.8% in the early 1980s. 10  BIS Review 134/2010  Another puzzle is a surprising drop in productivity we have seen over the recession. Unusually, the decline in output appears to have been much bigger than the decline in employment when normally we observe the opposite result. In terms of the impact on unemployment, this has been a good thing, helping to dampen the cost of the recession in terms of lost jobs. But this raises further questions about how much slack there is in the UK labour market as the economy begins to grow and generate new jobs. The behaviour of productivity in the recession also raises the question of whether the UK productivity growth trend over the medium term has shifted. If it has, we may make big mistakes basing our assessment of underlying growth on past productivity trends.

Clearly, in economic terms, the cost of litigiousness and its terrible effect on the reputation of the entire sector more than exceeds any hypothetical benefits that individual banks might have obtained through questionable practices. Society has clearly evolved and, in tandem, so have demands regarding the transparency, diligence, rigour and integrity expected of banks. I believe the sector is responding to this challenge, which involves achieving a significant cultural change in the way banks relate to their customers. I have pointed out that it is premature to analyse the results of this Law in terms of potential improvements to legal certainty, but we can see a change in the number of complaints submitted to the Banco de España. As you will know, in recent years the problems related to mortgage loans have led to the change in the number of complaints lodged with the Banco de España. This is due in particular to two issues: the above-mentioned floor clauses and mortgage loan arrangement costs, which saw a record number of complaints submitted in 2017. However, mortgage loan complaints made last year fell to levels of a decade ago. We expect this trend to continue. But apart from one-off changes in the time series, I wish to emphasise the fact that the problems behind these complaints stem from operations entered into prior to the enactment of the Law in question.
When homeowners get a new mortgage with a better interest rate, and pay off their 4/7  BIS central bankers' speeches  old higher rate one in the process, existing agency MBS are paid off more quickly, and replaced with greater issuance of newly-minted agency MBS containing the new, lower-rate loans. The benefit of the FOMC’s redemption cap is that it limits the pace at which securities will flow back into private hands under scenarios in which interest rates fall much more than expected. To illustrate this, projections for agency MBS repayments under a scenario of lower interest rates are shown in Panel 3—as you can see, in this low rate scenario, the caps would still be exceeded even when fully phased in. By providing market participants some certainty that the pace of balance sheet decline will be gradual across economic scenarios, this plan should help mitigate the risk of unexpectedly sharp shifts in asset prices, liquidity, or market functioning should markets begin to put greater weight on lower interest rate scenarios. Indeed, by promoting greater confidence in the stability and liquidity of the Treasury and agency MBS markets across economic outcomes, the FOMC’s plan should result in lower risk and liquidity premia on these assets, relative to normalization plans that do not promote such confidence. Being prepared for the unexpected While I am confident that the FOMC’s plan will work well, there’s always the risk that events unfold differently than expected.

In addition, we still believe in an appreciation of the krona during the forecast period due to fundamentals, which have subduing effect on imported inflation. It is therefore estimated that payroll expense could increase by an average of just over 4 per cent a year during the forecast period without any threat to the inflation target. However, 4 per cent is too high in the slightly longer term. There is a great risk that this figure will become established as a norm, as payroll expenses have increased by approximately 4 per cent a year over the past five years. If Sweden were to participate in Stage Three of EMU, we cannot have a rate of wage increase that deviates from the average in the euro countries. If the "norm" for payroll expense increases is 3.5 per cent, this means that nominal wage agreements must be signed at lower levels. This is because the scope must also cover wage drift and other wage costs, such as collective fees and reductions in working hours. Conclusion  In the October Inflation Report we foresaw a slightly more prolonged economic recovery than had earlier been expected. The weak development in the financial markets in the wake of bankruptcies and accounting scandals had contributed to the start of a decline in confidence from companies and households. In Sweden demand had been upheld relatively well, but it was estimated that fiscal policy needed to be tightened up to manage the expenditure ceiling. This means that growth may be more subdued in future.
The repatriation of funds will be even larger if we compute the amount over a longer period. Such arrangements are extractive in nature, and will have longer term implications for the development of a strong domestic industry. We need higher reinvestment by insurers to support the protection and risk management needs of our population and businesses. Intra-group reinsurance arrangements have also resulted in unnecessary outflows when such risks are well within the capacity of the onshore market. A handful of insurers have continued to disregard arrangements that have been put in place to optimise onshore capacity, ceding large amounts to group reinsurers. This is not an acceptable behaviour. It must change. Going forward, we expect insurers to review these practices and fully support optimisation arrangements. In parallel, more must be done to develop domestic underwriting expertise, especially in specialist risks. More must be done to create high income jobs. More needs to be done to improve remuneration packages at entry and middle levels, to attract young talents and retain expertise. The data we collated is stark. It is a clear conclusion. The data points to a prolonged underinvestment in talent, with fewer than 1 in 10 of the industry workforce today having any form of professional qualification. From another angle, the industry has yet to realise its potential, in part due to a lack of long-term commitment from domestic shareholders. The industry needs domestic shareholders that have a long term outlook and can support the deepening of our market.

In the Czech Republic, depositors very soon started searching for higher interest rates, or higher yields, in smaller “saving unions” with inherently riskier business models, as these institutions are also covered by the DGS and suddenly became to a given limit riskless for savers due to the disappearance of co-payment. Some of these institutions had to leave the market recently, eating up large sums from the pre-paid funds of the domestic DGS. I’m fairly sure that without this moral hazard behaviour induced by the harmonisation of the DGS rules the impacts on the system would not have been so pronounced. Or take another example. The regulatory debate on financial benchmarks in the world (and within the EU) influences sometimes adversely the willingness of banks to contribute to the benchmarks also in the markets where no improper behaviour of contributors has been proven or even detected so far. So it is great to harmonise and to coordinate. But you always have to bear in mind that you should not harmonise and coordinate towards rules that are riskier than the previous uncoordinated rules were on average. The third constraint is the one Claudio Borio of the BIS calls the “time inconsistency of financial stability policies”.
This means a greater regulatory burden for all and greater inconvenience to market participants, and possibly implications for the legal and institutional arrangements for regulation. Fourth, this approach may involve tighter rules for the markets. The critics may again say that this will further erode market freedom. But should we be so dogmatic? In any case, it is all a matter of degree. In the end, it is the public interest that counts. Is there, for example, anything wrong in restrictions against the holding of large dominating positions in any particular market, or against the taking of market moving activities? The purpose of a market is price discovery. There is no objection for buying low and selling high, and I would wish anybody who is attempting that the best of luck. But there is no legitimate reason for anybody to be operating in a market in a manner that has the sole aim of moving the price in order to make a profit. Tighter rules aside, it is interesting, and indeed slightly worrying, to note that stronger forms of restrictions and controls have been gaining currency among some monetary authorities or regulators in the past two years. These range from restrictions on domestic credit to some forms of exchange controls. This response is quite understandable and may be a reflection of the failure of the international financial architecture to accommodate the needs of small markets. But it is also regrettable, given the enormous benefit that international capital has brought to the region.

Yet another ‘G’ - the G20 - is in the process of being established. Hong Kong’s significant voice on the subject means that some of us have to be travelling and attending international meetings all the time. Yet our extensive involvement is necessary if the plight of the small open markets, particularly those that are international financial centres, is to be adequately heard and taken into account in the reform of the international financial architecture. BIS Review 120/1999  4  International reform Our stance in these discussions is that we support the free flow of international capital but that there is a need to limit its destabilising influence on financial markets, particularly those in small open economies. And specifically we point to the two interrelated aspects of excessive volatility and inadequate transparency that need to be addressed. Volatility is largely the result of herding behaviour, which is in turn the result of the lack of information on which market participants can make rational decisions. All this is made a lot worse when, because of the lack of market information, particularly in the case of the over-the-counter markets, market concentration develops, whether consciously or unconsciously. And market concentration has a tendency to lead to market failure and possibly market manipulation. The international solutions we put forward, therefore, are greater disclosure and, where applicable and practicable, enhanced regulation. It is in our reference to market manipulation that I think we touched a few raw nerves, particularly against the background of the controversial action we took last summer.
Our latest Inflation Report forecast published last week - based on constant 6% interest rates, and on reasonable central assumptions about certain other key elements in the forecast - projects continuing overall output growth - of around 3% initially, moderating to around 2½% from around the end of this year - with continuing low inflation - at a rate of around 2% this year but rising back to around the 2½% target in the course of next year, with the risks - on these assumptions - modestly on the upside. But, given the current uncertainties, individual members of the Committee quite naturally prefer their own alternative assumptions about some of the key variables - most notably the likely future path of the exchange rate and the size and duration of the effect of the downward pressure on margins. And these varying assumptions could either raise or lower the rate of inflation two years ahead by up to ½ percentage point. That, Mr Chairman, is all fairly technical stuff. The point to hold on to is that, on a reasonable range of assumptions, the prospect for the economy as a whole over the next couple of years is for continuing steady growth with low inflation, and most of us would happily settle for that. The debate is about just how strong the growth and just how low the rate of inflation.

So, even supposing we could influence the exchange rate in the direction we would no doubt all like to see - the hard question for us in current circumstances is could we - and should we - attempt to do so, in order to try to shelter internationally-exposed businesses, if that were to mean putting our objective of sustained low inflation at risk. In fact I’ve not heard anyone argue openly for that - and I would be surprised if they did. The reality is that if we were to put the economy as a whole at any significant risk of accelerating inflation - notwithstanding our mandate - we would not succeed in providing the intended protection even to the internationally-exposed sectors, except possibly in the very short term; and we would jeopardise the prospect of sustained growth in the economy as a whole further ahead. That very clearly was what happened when we sought to hold the exchange rate down against the DM for a time in the 1980s. There is no simple solution to this very real dilemma. And while I really do understand the pain that many internationally-exposed businesses are suffering, I’m afraid my vote must go with those who voted yes on the first ballot. Now let me turn to the second - and quite distinct question - which relates to the practical operation of monetary policy.
But the extent to which an easing in the labour market induced by monetary tightening will weigh against inflationary pressures will depend on the wider context. It is here where the interaction with developments in energy prices plays out. Higher energy prices and the terms of trade In contrast with developments in the US, wholesale European natural gas prices have risen very sharply over the past year, and continue to show substantial volatility. Owing to the importance of pipeline infrastructure to the transport of natural gas, there is much less integration than for other energy commodities like oil. Notwithstanding Brexit, for these reasons, the UK remains closely integrated into the European natural gas market. Gas price developments in Europe have departed very significantly from those in the US, owing to the disruption to supplies of gas from Russia in the aftermath of the Russian invasion of Ukraine last February. The rise in European gas prices came as a genuine surprise: the Russian invasion was not foreseen in the autumn of 2021, and the duration and intensity of the subsequent conflict have anyway proved greater than expected at the outset. The rise in gas prices has therefore been substantial: at its peak in late August, the April natural gas future stood more than ten times higher than a year previously.

The text has also benefitted from helpful comments from Andrew Bailey, Ben Broadbent, Fabrizio Cadamagnani,  Page 11  Jonathan Haskell, Josh Jones, Catherine Mann, Rhys Phillips, Dave Ramsden, Andrea Rosen, Martin Seneca, Fergal Shortall and Silvana Tenreyro for which I am most grateful. Opinions (and all remaining errors and omissions) are my own. 1. See Money Marketeers of New York University  . 2. Another – and, in my view, largely equivalent – way to characterise this process of ‘normalisation’ is as an ‘exit’ from the exceptional and unconventional policy measures introduced in the face of the global financial crisis and its aftermath. From the introduction of those measures, it was recognised widely in the central bank community that such exit would pose challenges for the design, implementation and communication of monetary policy. 3. Moreover, the large portfolio of asset purchases accumulated as a result of QE has been run down in parallel with the rise in Bank Rate. Since March 2022, the Bank of England has ceased to reinvest the proceeds of maturing bonds held in its Asset Purchase Facility (APF) used to house the QE portfolio. As of November 2022, the Bank has sold gilts from the APF to the market. Corporate bond holdings in the APF have been reduced by similar means. 4. The concept of a ‘neutral’ balance sheet remains even more elusive than that of a ‘neutral’ interest rate at both empirical and conceptual levels, so I focus on the interest rate dimension here. 5.
In the U.S., we saw a spike in Treasury yields, with the 10-year rate rising by more than 100 basis points from early May before peaking in early September. Most commentary about this period has focused on the shift in expectations with respect to U.S. monetary policy – and, in particular, to uncertainty about the timing and implications of Fed tapering – as the catalyst for these moves. This focus seems generally right to me, although other factors also played a role. 1  1  Market participants also had to evaluate the possibility that growth in China and other EMEs might be slowing even as growth in the U.S. and other advanced economies was picking up. The subsequent market movements as investors withdrew funds from EME investments were an abrupt shock for these EMEs generally, especially after the long earlier period of abundant liquidity and ample inflows. BIS central bankers’ speeches  1  From one perspective, the unconventional nature of recent U.S. monetary policy adds little that is fundamentally new to the challenges that face the EMEs. These policies simply represent a way of easing, necessitated by our coming up against the zero lower bound. Central bankers have managed differences across countries in cyclical positions and policy stances many times in the past. This time should not be fundamentally different. But, from another perspective, we have less experience operating with unconventional monetary policy, and this creates more potential uncertainties.

While explicit coordination looks neither feasible nor desirable, there is more that central banks in general, and the Fed in particular, could do to be better global stewards. As an example, recent events demonstrate the importance of effective Fed communication. It is clear in retrospect that our attempts in the spring of 2013 to provide guidance about the potential timing and pace of tapering confused market participants. In particular, markets seemed to conflate tapering with monetary policy tightening and raised their expected paths for policy rates. Lately, we seem to have done better: markets now seem to understand that policy rates will likely remain exceptionally low for a considerable period of time even now that the asset purchase program has been completed. As you know, we’ve taken a number of steps in recent years to increase transparency and improve our communications. This includes regular press conferences following Federal Open Market Committee (FOMC) meetings by the Fed chair; the publishing of growth and inflation forecasts of FOMC participants; and a concerted attempt to lay out the guideposts that the FOMC will look at to assess progress toward our mandate. We are, though, still learning how to more effectively communicate, especially given our new and expanded set of policy instruments. A second area in which we can and must do better is safeguarding financial stability. Simply put, we failed to act both early enough and decisively enough to stem the credit excesses that spawned the financial crisis and the Great Recession.