samchain/econo-pairs-v1 huggingface dataset:
Asian and Latin American emerging economies are particularly sensitive to changes in the international arena. In Latin America, GDP data for the second quarter show a significant slowdown. The Brazilian economy, in particular, is worrying given its high budget deficit and significant current account shortfall (although the latter has begun to be corrected), along with inflation that needs to be contained and corrected as soon as possible. The IMF projects Brazilian GDP will fall by 3% this year and will fall further, albeit moderately, in 2016. I would like to indicate that the impact of the downturn in the emerging economies on Spanish banks, even for those with significant exposure to some of these economies, has been moderate. The geographical diversification of their businesses and the adjustments made to their management have contributed to the stability of their balance sheets. Developments in the euro area As for economic developments in the euro area, growth in the second quarter was external demand-led, although internal demand continues clearly to support disposable income arising from lax monetary policy, the neutral fiscal policy stance, low energy prices and the improvement in the labour market. 2  BIS central bankers’ speeches  In September, the ECB revised downwards its growth projections for the euro area to 1.4% in 2015, 1.7% in 2016 and 1.8% in 2017. It should also be noted that the approval and start-up of the Third Bailout Programme for Greece has mitigated the risks in the area, a source of uncertainty for the Spanish and other European economies.

Large exchange rate movements have at times been a source of instability. In Norway, the household, banking and corporate sectors as a whole take on currency risk to a limited extent. Furthermore, government finances are solid, and fiscal policy is not affected to any great extent by short-term exchange rate movements. This allows the exchange rate to play an important role in absorbing shocks to the economy. We have thus been able to reap the benefits of an efficient international capital market without having to deal with its challenges. 1/3  BIS central bankers' speeches  At the same time, in a world of high capital mobility and extensive trade, monetary policy’s room for manoeuvre is constrained by the exchange rate channel. In a small open economy with a floating exchange rate, the domestic interest rate can differ from interest rates abroad. However, an interest rate differential that becomes too wide can lead to considerable exchange rate volatility, which will in turn feed through to inflation, output and employment. Thus, the domestic interest rate cannot be set without regard to the level of external interest rates. The room for manoeuvre in monetary policy is further constrained in periods when external interest rates are close to or below zero. Although the financial crisis in 2008 had a marked impact on Norway, our economy was affected to a lesser extent than most other advanced economies. There are a number of reasons for this. The Norwegian economy was in an upturn when the crisis hit.
The diversity project Speech given by Andrew G Haldane, Chief Economist, Bank of England  Opening remarks given at the Investment Association Launch of the Diversity Project Tuesday 8 November 2016  1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  1  Let me start by congratulating Helena for launching the Diversity Project. It is a great initiative. The UK’s financial services industry is a world-leader in a great many respects – and long may that remain the case. Yet when it comes to issues of diversity it is often a laggard. For example, recent work by PWC has shown that the gender balance in Financial Services diminishes sharply with seniority. Despite women making up 60% of all employees, only 25% make it to middle-management and only 19% to more senior roles. 2  This is deeply disappointing. But it also presents the industry with a real opportunity to make some great strides forward. I hope the Diversity Project under Helena’s leadership, and the announcement of Jayne-Anne as the Government’s new Women in Finance Champion can help seize that opportunity and propel financial services into a leadership role on diversity too. When I asked a colleague what I should talk about today, she said I needed to have a personal story. That was an immediate challenge. As a white, middle aged, middle class, man working for an Establishment institution, I am not exactly part of a disadvantaged minority. Or am I? Diversity, like beauty, is much more than skin deep.

What is the next frontier for diversity and how is it to be reached? From a potentially long list, let me make four points on possible next steps. First, we have barely scratched the surface when it comes to harvesting the fruits of existing diversity initiatives, focussed on the protected characteristics of gender, ethnicity and disability. On gender, where progress has perhaps been fastest and furthest, there are still gaps to fill all the way up the executive chain, especially in financial services, with a persistent pay gap of 20-30% and low levels of representation at executive level. On ethnicity, as John Parker’s report last week made clear, we are scarcely out of the  7  For further details please see Haldane (2014) ‘Central bank psychology’. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  starting blocks. And on disability, physical and mental, much the same could be said. Whatever else we do, we must not let up in continuing to make progress along these dimensions of diversity. Second, notwithstanding that, I do think we need to do a much better job of understanding and measuring the more subtle, cognitive and socio-economic dimensions of diversity. They are harder to identify and measure, as the information exists between our ears rather than on our faces. But that is precisely why unconscious biases may be largest and most in need of redress.
In other cases, there was a change in the relationships between prices and other factors that had been previously observed. The calculated probabilities quite simply did not reflect the reality. It is easy to make a comparison with Swedish humorist Tage Danielsson’s classical sketch about the probability of a nuclear accident: as Harrisburg had just happened, there was absolutely no risk that history would repeat itself. Or to look at it another way, as the complicated financial instruments had previously escaped sudden price falls, one need not expect any sudden price fall in the future. Slightly exaggerated. Underestimating risks and taking excessive risks are two sides of the same coin. And this was just what happened, right up until the US house price bubble burst and the crisis was upon us. It is thus clear that there is a need to ensure that risk management is tightened and that the deficiencies in the banks’ balance sheets are corrected. The Basel Committee therefore requires that the banks assume that many financial instruments – including the derivatives I just mentioned – are much riskier than the banks previously assumed. So under the new regulations the banks must leave a good margin for substantial losses possibly arising when they buy and sell risky instruments. Moreover, the Basel Committee is introducing a new risk measure – a leverage ratio. Behind this term lies a fairly simple measure of risk that is not based on any advanced risk calculation models.

Central bank responses have also tended to adapt themselves to the structure of the respective financial systems, and to the specific dysfunctions and tensions. For instance, the fact that the banking sector plays a predominant role in channelling credit in the euro area economy — compared with the Anglo-Saxon model which is underpinned to a greater extent by the capital market — was from the outset a distinguishing feature in the design of the ECB’s response. Also, set against the strategies deployed by the Federal Reserve or the Bank of England, based principally on “quantitative easing”, the Eurosystem’s response has been more complex over time, adapting itself to the difficulties that have arisen at the  BIS central bankers’ speeches  1  different stages of the euro area crisis, though seeking always to act on the segments of the transmission monetary policy mechanism that were seen to be most impaired. The perception that the interbank market had ceased to operate as an efficient liquidity distribution mechanism between banks meant that the liquidity-provision policy had to become more flexible. And, when the crisis worsened in September 2008, far-reaching changes had to be made to the monetary policy operational framework, to allow the ECB to meet the system’s gross liquidity needs, with a substantial expansion of the size of its balance sheet.
The MPC since I joined it at the end of 2013 certainly appears to have been pretty consistently stodgy in the sense of slow moving. We have moved policy twice over that period. And one of those moves was a response to an exceptional and unprecedented exogenous event – the Brexit referendum. Only one move, the rate increase last November can be thought of as usual, ‘bread and butter’ monetary policy. There has been one or more votes for changing policy in only 22 of the 49 meetings. When I compare this to 2002 to 2007 -- my period on the Committee as the Treasury representative -- the contrast is striking. Over that period, the Committee moved policy 12 times and with one or more votes for changing policy in 41 of the 56 meetings. This lack of action from the Committee since I joined it as a member in 2013 was certainly not the reflection of lack of developments in the UK economy. From mid 2013 to early 2015, unemployment dropped like a stone – by 2pp in the space of 18 months, the fastest rate for 25 years. At the same time, growth was picking up from close to 1% to about 3%. 1  Blinder (1999) 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  Nor was it the result of lack of advice. As Mark Carney has recently pointed out, the pre-crisis MPC had always tightened policy in response to accelerating growth and firming business confidence.

16  12  Having been at 3% or above through the last quarter of 2018, the 3m-o-3m rate was 2.5-2.6% for the first three months of 2018 and weakened a little more, to 2.4%, in April. 13 As Bell and Blanchflower (2018) have highlighted, though low, indicators of underemployment remain above pre-crisis levels. 14 Carney (2018) and McCafferty (2018) 15 Or as elegantly put by Rudi Dornbusch – crises take longer to arrive than one would expect, but then happen faster than one would have thought. 16 Tenreyro (2018) 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  My assessment is that these are the lesser risks; while more familiar economic relationships seem to be re-establishing themselves we are unlikely fully to go back to the future – some of the changes in the structure of the economy we have seen will be persistent. 17  I have managed to get pretty close to the end of my discussion of policy and uncertainty without mentioning Brexit – which is surely an achievement nowadays. Brexit, both the eventual end state and the path to it, create very material uncertainties for the UK economy. I do not, however, see these uncertainties as justification for stodgier approach. Brexit is already affecting the UK economy. The depreciation of sterling following the referendum generated inflation that has in turn squeezed real incomes and led to the drop in consumption and activity in the UK at the end of 2016.
Birgir Ísleifur Gunnarsson: Iceland in a global setting Keynote speech by Mr Birgir Ísleifur Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, at the Euromoney conference on the Nordic Financial Markets and Investment Opportunities, Stockholm, 13 September 2002. *  *  *  Mr. Chairman, ladies and gentlemen. It is a pleasure to participate in this ambitious conference on the Nordic Financial Markets and Investment Opportunities. I will in my remarks today mainly focus on aspects relating to Iceland. Size separates Iceland from the other Nordic Countries, Denmark, Finland, Norway and Sweden. Other factors separate the Nordic Countries as well. Finland is a member of the European Union and the Economic and Monetary Union, EMU, as well. Denmark and Sweden are members of the European Union but are outside the EMU. Norway and Iceland are outside the European Union but maintain very close ties to it, particularly through the European Economic Area Agreement. That agreement makes Norway and Iceland a part of the single market of the European Union, which entails among other things that they are obliged to maintain financial market legislation, which fully conforms to that of the European Union. The Nordic Countries have different monetary regimes. Finland is a member of the EMU, Denmark is linked to the EMU through an ERM II agreement entailing that the Danish krona is very closely tied to the euro. Sweden, Norway and Iceland have chosen an inflation-targeting regime as their monetary framework (Iceland in March 2001).

C)  new (non-bank) market entrants  •  the digitalisation of financial services opened the doors for a wave of new market entrants;  •  there are two categories of new market entrants;  •  first, there are start-ups making use of new information technology applied to financial services (“FinTech” companies);  •  second, there are established internet companies (large US social media or ecommerce platforms);  •  In most cases, they do not offer banking services other than the initiation of payments or access to account information;  •  these new product and service providers might present a challenge to the traditional market incumbents’ revenue streams;  •  their impact on the underlying financial market infrastructure will be more limited as the clearing and settlement of payments and securities transactions still take place between the account-holding entities.
Developments in the 1970s and 1980s showed that a higher rise in costs in Norway relative to other countries leads to a slacker labour market. This will also be the case this time. 5) Pressures on the exchange rate of commodity-based economies There is a correlation between price inflation and the exchange rate. As mentioned, the exchange rate has a significant influence on prices and costs through its effect on import prices. Furthermore, a precondition for maintaining a stable exchange rate against European countries is that inflation in Norway is over time on a par with the inflation rate prevailing in these countries. The high rise in costs in 1998 was probably the main factor that weakened confidence in the krone. International conditions also played a significant part. In 1998, the world economy was hit by the financial crisis in Asia, Russia and Brazil, falling commodity prices and widespread unrest in international financial markets. The Asian crisis proved to be more serious and prolonged than envisaged, and the contagion effects were more severe than most observers had anticipated. Weaker global demand contributed to a sharp fall in commodity prices, which in turn had a severe impact on commodity-based economies such as Norway, Canada, New Zealand and Australia. For all these countries, the terms of trade worsened and exchange rates depreciated. The Asian crisis also made investors more cautious, with an outflow of investment from countries perceived as risky.

After it became clear that Russia would not, in practice, be servicing its foreign debt, market participants became highly risk-averse. The unrest spread to European BIS Review 10/1999  –6–  financial markets and Norway. Investors fled to safe-haven countries such as Germany, the US and Switzerland, and the currencies of countries with less liquid and more volatile financial markets depreciated. This included countries such as Norway and Sweden. The Norwegian krone depreciated sharply from around 101 against the ECU index at the beginning of the year to 115 in October, or the weakest rate since the objective of exchange rate stability against the ECU was adopted. 6) Monetary policy in 1998 Norges Bank responded to the sharp depreciation of the krone by raising its key rates in several steps in 1998. These rates were first raised in March, after the krone weakened in the first three months of the year from 101 to about 103.5 against the ECU index. The krone then appreciated slightly and stabilised for a period. Pressure on the krone increased during the summer. Norges Bank responded by raising its key rates on six further occasions. Following the last increase on 25 August, the deposit rate and the overnight lending rate were 8 and 10 per cent, respectively, i.e. 4.5 percentage points higher than at the beginning of 1998. It is difficult to predict the direct short-term effect of changes in interest rates on the exchange rate.
Payments over the counter, cheques, cash withdrawals and paper-based giro transfers are expensive to produce. Electronic payments, such as direct debit, transfers via Internet banks and card payments are far cheaper to produce. It is not so surprising that in the past twenty years we have to a great extent switched from paper-based to electronic payments. 5 This is surely a trend that will continue. New developments in the market Everything I have spoken of here is essentially to do with what we can describe as traditional forms of legal tender. Even Internet payments are essentially traditional in the sense that money is transferred between accounts. During the 1990s there were many, not least within the central bank world, who believed that electronic money (e-money) would replace if not all, at least a large part of the smaller payments that are made with banknotes and coins. In somewhat simplified terms, one could say that e-money is money that has been transferred, for instance, from an account in a bank to some form of computerised medium, where it is stored and can then be used for payments. The storage space may be a microprocessor embedded in a plastic card – socalled smart card – but it may also be in the hard drive of a computer or a central server – so-called network money. In Sweden at present e-money is not issued nationwide. However, it has existed.

The projections for the key rate, inflation, output and other variables are based on our assessment of the economic situation and our perception of the functioning of the economy and monetary policy. If economic developments are broadly in line with our projections,  5  See Staff Memo 2008/3 from Norges Bank. BIS Review 37/2009  13  economic agents can expect that the interest rate path will also be approximately in line with that projected. On the other hand, the interest rate path may shift if the economic prospects change, or if the effect of interest rate changes on inflation, output and employment differs from that assumed. In the Monetary Policy Report, we present two alternative scenarios where demand is higher or lower than presented in the baseline scenario. The yellow lines in the chart illustrate a scenario where growth in private consumption is stronger than expected and the turnaround occurs more rapidly. In this scenario, interest rates may decrease to a lesser extent and move up more quickly. The red lines in the chart illustrate a scenario where the global downturn is deeper and more prolonged, with more pronounced effects than assumed. It will then be appropriate to set a lower interest rate in order to stimulate the economy and thereby prevent inflation from becoming too low. The primary effect of a key rate close to zero will probably come via a weaker krone. It will then be appropriate to consider instruments other than the interest rate.
Secondly, due to the trade offs I described earlier, the government has proposed that the FPC be subject to a constraint that it should not act to preserve stability at the cost of significantly impairing the capacity of the financial sector to contribute to medium-to-long term economic growth. What this means in practice is that when faced with an immediate or incipient threat to stability, we must try to find a solution that avoids damage to long-term growth. That discipline is welcomed by the Bank. This is obviously all novel stuff. It is therefore helpful that the government plans to ask Parliament for a power periodically to flesh out the statutory objective, via a Remit from the Chancellor of the Exchequer – an arrangement that has worked well in the monetary field in the UK. It will enable practical lessons to be incorporated into the regime over time. Why is the UK’s macroprudential body separate from microsupervision? Most central banks have traditionally regarded their contribution to financial stability as deriving from their markets and banking supervision functions. That is explicit in the Federal Reserve’s 1913 statute, with which I began these remarks. And given the UK’s heavily concentrated banking system, effective banking supervision is obviously an essential precondition for preserving stability. But in terms of how organisations work in the real world, the flaw in relying entirely on this is that it assumes that those operational areas of the central bank will invariably make time and space to address the financial system as a system.

In particular, what does the MPC’s so-called forward guidance, which we announced in the summer, mean for you – the businessmen and women driving this recovery? And that’s the plan for today: to consider three key questions about the economic recovery that we’re now finally enjoying – why now, will it last, and what next for policy? 1  Securities and Investment Review, September 1993. BIS central bankers’ speeches  1  Why now? First, why now? Why after several years of frustration and disappointment has the economy begun to grow? It’s hard to be certain: this time last year we were not predicting such a sharp turnaround in growth and there’s a danger of appearing to be wise after the event. But, at least with the benefit of hindsight, two developments in particular seem important in driving the turnaround: an easing in credit conditions; and a reduction in economic uncertainty. Let me say a few words about each, starting with credit conditions. Improved credit availability Although it’s still patchy and there’s further to go, we’ve observed a marked improvement in the ability of many companies and households to access credit over the past 18 months or so. Some of that stems from a lessening of tensions within the euro area, which has helped to ease pressures on banks both sides of the channel.