samchain/econo-pairs-v1 huggingface dataset:
Mr Bergström gives a speech on the Swedish economy: new or old? Speech by Mr Villy Bergström, Deputy Governor of Sveriges Riksbank, at Kommuninvest, Stockholm, on 1 March 2000. *  *  *  The Swedish upswing has now begun in earnest and GDP growth is estimated at around 3.5% per year during the next few years. In the course of 1999, it became increasingly clear that we were on the verge of an upswing. The negative atmosphere after the Asian crisis, the Russian suspension of payments and the problems in the hedge fund, Long Term Capital Management, had subsided and been replaced by optimism in many countries. The fact that the financial crises did not have such negative effects on demand as many had feared can probably be partly accounted for by the relaxation of monetary policy introduced by many central banks. The Riksbank was among these, reducing the repo rate from 4.4 to 2.9% between spring 1998 and spring 1999. When the scenario of the Swedish upswing was confirmed and as resource use was accordingly expected to increase, it was natural to conduct a slightly more cautious monetary policy to avoid inflation accelerating. Since November, the Riksbank has therefore increased the repo rate by 0.85 percentage points to 3.75. However, this is still an expansive monetary policy in the sense that the short real interest rates are so low that they should stimulate demand.

In the 1980s and 1990s, central banks in many countries are granted greater independence from the political authorities. This mitigates the time-inconsistency problem. Central banks can – and should – make unpopular decisions when necessary. Central banks are given the responsibility for ensuring low and stable inflation. An explicit numerical inflation target is introduced in more and more countries. The first one to do so was New Zealand in 1990. In Norway, the authorities continue to pursue a fixed exchange rate policy for a while, but in 2001, the Government introduces an inflation target in Norway.4 In the initial period of inflation targeting, central banks are concerned with building confidence in their targets. Many central banks practice inflation targeting fairly rigidly and seek to guide inflation back to target relatively quickly after a deviation. Once confidence is established that inflation will remain low and stable over time, central banks can give more weight to other considerations, such as promoting high and stable employment. Inflation targeting gradually becomes more flexible. Norway’s experience with inflation targeting is positive. In spite of a global financial crisis and large swings in oil prices, inflation remains low. Monetary policy is used actively to stabilise the economy. In the revised monetary policy mandate adopted in 2018, it is specified that monetary policy shall be forward looking and flexible. But monetary policy does not operate in a vacuum. An appropriate division of roles in economic policy is decisive. 3.
There is also a self-evident need for political decisions concerning the legal system and other matters to do with the necessary foundation or infrastructure both of markets and of society in general. Finally, there is a place for political decisions  BIS Review 2/2002  1  when it comes to basic welfare issues and matters to do with the distribution of the assets that economic activities generate. It is clearly essential that political decisions are reached in such a way that they reflect the interests of a majority. A democratic system presumably provides the best assurance of this. But that does not mean that decision-making by political assemblies is an end in itself. On the contrary, a prudent division of responsibilities between the political system and markets is essential. A great deal of the political debate is, in fact, about this dividing line between political and market decisions. Economists have quite a lot to say about this; they can elucidate the pros and cons of alternative solutions. But it is also a question of value judgements. Moreover, the political system needs to be sufficiently robust to stand up to pressure when special interest groups and other lobbyists try to secure preferential treatment, not to mention outright corruption. Another important matter is to ensure that market systems work properly as regards competition. There are certainly problems in all these respects, not least in developing countries but by no means only there.

We are being tied together more and more by trade, by emerging financial markets and, of course, by modern forms of communication. Secondly, in the past twenty-five years a great many people have become materially better off. Lima’s streets and shops are evidence of this. Yet Peru is not one of the developing countries that have benefited most from the economic developments in recent decades. On the contrary, whereas the developing countries’ aggregate GDP has grown by 89 per cent since 1980, the figure for Peru is 60 per cent. Due to differences in population growth, moreover, the corresponding per capita figures are 35 and 10 per cent. Thirdly, despite all the improvements, many people are still living in poverty. Income gaps in Peru were glaringly large throughout the twentieth century and remain so today. In 1996 the income of the richest fifth of the population was twelve times that of the poorest fifth. Turning now to the developing countries as a group, in the past fifteen years the proportion of poor people has admittedly decreased but it is still the case that the favourable trend in recent decades has failed to benefit large numbers — even practically entire countries, particularly in Africa. To me it is a healthy sign that this situation is raising questions about how the global economy functions. Personally, I do not think we should rest content with aiming for a general improvement in living conditions for everyone.
In addition to issues about banks themselves, I will talk about the underlying preconditions for banking; the legislative and regulatory framework; the supervisory agency and its work; and also the need to supplement the banking system by other financial institutions and markets. There is no single blueprint for banking reform, and my observations come from experiences in many countries, including my own. In my previous work as an IMF director but also as a civil servant in Sweden, I have seen numerous examples of shortcomings in the preconditions for banking, in the regulation and supervision of banking and in the conduct of banking activities. As a minimum, these shortcomings have led to inefficiencies in providing financial services to society. They have also led to higher costs and in many cases to bank problems and even systemic crises. My obvious conclusion is that banking reforms which deal with the flaws are worthwhile for all parties and countries. The cause for banking reforms is strengthened by current developments in banking, which includes a spread of cross-border institutions and activities but also new instruments and methods to handle risks in banking. Such developments generally increase efficiency and stability in banking, but need to be carefully regulated and supervised because they also contain inherent vulnerabilities and risks. Banks As I said at the outset – I do not believe that the authorities can create an efficient banking system “by decree”.

The regulation should allow for a wide range of banks and other financial institutions conducting their activities on a level playing field. The degree of regulation and supervision should be commensurate to the size, nature and complexity of their activities. I wish you luck in your endeavours to reform your banking and financial services industry. As you know, you may call on the IMF to assist you with advice or TA for capacity building or for other purposes. BIS Review 104/2006  7
Lending to microfinance sector now counts for more than 10 per cent of the whole lending portfolio of the banking system. The quality of the microfinance loans has been satisfactory. On average, the portfolio at risk is between 1.5-2 percent, according to their reports. This is not only because of their small size (usually under 1.5 thousand euros each), but also because of the diversity of the projects, ensuring diversification of the loan portfolio. One should also say that the experience gained by the microfinance institutions in this area, have also played an important role for this good quality. The legal framework on microfinance was completed in 1996, with the approval of a special law that defined the principles upon which such institutions could be found and operate. Such principles for the specialized institutions included free will, reciprocal cooperation, capitalization of the profit and reinvestment in the community etc. Later developments made it necessary for the Law to change. Hence, a new Law “On Savings and Loans Associations and their Unions” was approved in Parliament on May of 2001. Several changes supported this new law. Besides the principles that were restated, the Law has defined the legal personality of the microfinance institutions, their permitted activities, the rights and the obligations of the members of the association, the managing structures of the associations and their functions, other important supervisory financial requirements and ratios, the role of the Unions and that of the Bank of Albania as the regulatory and the supervisory authority.

With the mission of promoting stability of international financial architecture and monetary system, he has organized roughly 100 seminars around the world facilitating dialogue among high-ranking officials, academics and market participants. I had the pleasure of attending some of his seminars and can only compliment to his expertise and passion to do great work at any time. Marc, it is a true pleasure and privilege working with you. I hope that we will be able to do this again. Please, the floor is all yours. Thank you! 2/2  BIS central bankers' speeches
It is this estimate that underlies the plan drawn up by the Government and the Storting, referred to as the fiscal rule. The rule states that the Government is to spend, as an annual average through the business cycle, the expected return on the petroleum fund i.e. 4 per cent. Because of the high level of activity, the Government has proposed somewhat lower petroleum revenue spending next year than the 4 per cent of the Fund’s value at the beginning of the year. The proposed tax programme for next year will have a fairly neutral impact on economic activity. Proposed direct and indirect tax rates will generate approximately the same government revenues as last year’s tax rates had they been left unchanged. However, the overall central government budget will have a stimulatory effect. This is reflected in fairly strong nominal spending, which is higher than the rate of growth in mainland GDP that can normally be expected. Norges Bank’s interest rate setting is based on two main criteria for future interest rate developments. First, the interest rate is set with a view to stabilising inflation close to the target in the medium term. The horizon will depend on the shocks to which the economy is exposed and their effects on the path for inflation and the real economy ahead. Second, the interest rate path shall provide a reasonable balance between the path for inflation and the path for capacity utilisation.

Moreover, Norwegian importers have gained access to new markets in central Europe and Asia which offer substantially cheaper  2  BIS Review 141/2007  consumer goods. Norway’s terms of trade have improved by about 40 per cent since 2002. Recently, however the terms of trade have become slightly less favourable. This is partly due to weaker prices for Norwegian exports, such as metals. Slightly higher import prices have also had a negative impact. Second, an ample supply of labour has boosted output growth. A strong increase in the population has expanded the growth capacity of the Norwegian economy without a comparable increase in wages. In particular, the supply of foreign labour has increased sharply after EU enlargement in 2004. Over the past two years, these labour inflows have accounted for over 30 per cent of growth in the labour force in Norway. At the same time, this has enabled Norwegian companies to be bolder in accepting new assignments and making investments, in the knowledge that they can procure labour throughout Europe. Third, productivity growth has been unusually high, for both companies competing on international markets and those supplying goods and services to the domestic market. The result is lower production costs. Banks and other service sectors, in particular, have outperformed other countries in this respect. The business sector has been quick to adapt and change, and to make use of new technology that is available in an international market.
Jürgen Stark: Taking stock – where do we stand in the crisis? Speech by Mr Jürgen Stark, Member of the Executive Board of the European Central Bank, at the BMW (Bayerische Motoren Werke) Stiftung Herbert Quandt, Washington DC, 15 April 2010. *  *  *  Ladies and gentlemen, Introduction: macroeconomic developments and outlook In autumn 2008, the world economy entered the worst financial crisis and the deepest recession since the Great Depression. Both monetary and fiscal policies responded vigorously to this exceptional situation and contributed to the emergence of a recovery in the course of 2009. Hence, after falling last year, global activity is expected to grow by around 4% this year, while global trade is expected to grow by almost 6% (IMF January WEO update). Strong growth in emerging market economies in Asia is a major driving force behind these figures, while growth in many advanced economies is forecast to be weak. Questions can be raised as to whether such an uneven pattern of the recovery will prove sustainable. In the euro area, recent information indicates that the recovery has continued to expand in the first few months of this year. Looking forward, euro area growth is expected to remain moderate, owing to ongoing balance sheet adjustments in the private sector, weak prospects for the labour market and low capacity utilisation. Available growth forecasts for 2010 put it at, on average, around 1%.

From the very beginning, we have been aware of the fact that keeping our non-standard measures in place for longer than necessary would entail the danger of creating harmful distortions. Therefore, we designed the measures with exit considerations in mind. In view of the improvements in financial market conditions seen since last spring, we have started to gradually phase out some of them. More specifically, we have stopped providing liquidity in foreign currencies, and we have stopped operations involving maturities longer than three months. Also, we have decided to return to variable rate tenders in the regular three-month operations towards the end of this month. However, the Eurosystem will continue to provide liquidity support to the euro area banking system at very favourable conditions in its shorter-term refinancing operations (that mature after one week and after approximately one month). We have decided to do this for as long as necessary and at least until mid-October this year. The speed and path of the subsequent gradual phasing-out of the non-standard measures will depend on economic and financial market developments. The remaining measures are not many. They include, inter alia, the tender procedures to be applied in the main refinancing operations and the operations with a duration of one maintenance period, approximately one month (which could be returned to variable rate tenders). All our actions will remain fully in line with the objective of maintaining price stability over the medium term. We do not know today what normality will look like after the crisis.
This is an area where the private sector has made enormous advances in recent years, much of it strongly encouraged by the banking supervisors. Risk management has become more sophisticated with more differentiation between risks: the separation of credit and market risk; the recognition of operational risk as a distinct category; and the importance of reputational risk. Notwithstanding that the nature and size of our operations are different and smaller than many private sector institutions, the Bank is exposed to many of these same risks. In managing these risks, we have wanted to ensure that our practices are consistent with best practice in the private sector, to the extent that this is applicable to a central bank. We have invested heavily in technology to allow management of the risks on a consolidated basis and where appropriate in real time. We have also instituted a number of organisational changes, setting up an Assets and Liabilities Committee which I chair and which reviews at senior level the management of our balance sheet; and a Risk Monitoring Department (based in part on the Middle Office model of the private sector), independent from our banking line management. Above this, like public companies, we have a number of Board sub-committees, and in particular an Audit Committee, taking reports from the Internal and External Audit, looking carefully at our internal systems and controls and our policies and processes for management of the main financial, operational and reputational risks.

But since the target is set at 2.5% on a symmetrical basis, the concept of “prudence” cannot be applied in the same way. The result is that we worry as much about being below the target as we do about being above it. And I believe this makes good economic sense: the problems of severe deflation are at least as great as severe inflation. The particular indexed measure of inflation the Chancellor has chosen is RPIX, that is the headline RPI number after excluding - this is the X bit - mortgage interest payments. Some believe that we should move to the Harmonised Index of Consumer Prices (HICP), widely used in Europe and, accordingly, making comparison with Euroland inflation easier. HICP inflation in this country has been running consistently below RPIX by about 1%. This reflects differences in the construction of the index, in particular the treatment of depreciation of property costs. Some have argued - most recently the Engineering Employers’ Federation - that if we moved to HICP, then interest rates could immediately be lowered. But this does not follow. If we moved to a different calculation of inflation, it would seem natural to revise the target at the same time. A 2.5% target for HICP would mean that we are targeting a higher level of inflation than we are at present.
What this means is that if members of the public do not believe in the central bank’s ability to control inflation, a rise in prices could trigger public expectations that prices will rise even more in the future. Businesses will soon raise prices of goods, and workers, in facing higher prices, will in turn demand for higher wages, leading to a vicious inflationary cycle. Inflationary expectations, if unhinged, would eventually become a self-fulfilling prophecy. As such, the interest rate increase reflects the central bank’s strong commitment to control inflation. A central bank that is seen as having a strong commitment and is credible in its actions to fighting inflation would therefore have a higher probability of success in anchoring inflation expectations. This is essentially what we will find in every textbook on monetary policy. In reality, however, there is more to inflation expectations than meets the eye. A case in point is Malaysia’s inflation experience in 2008. At that time, we had the firm conviction that the spike in inflation and inflation expectations during the period would be temporary, as the prospect of weakening demand would dampen price increases in the future. Most importantly, we also saw the sharp spike in commodity prices and increasing risks from the US financial market which posed significant downside risk to future growth. As events began to unfold, this conjecture turned out to be the baseline case.

The company then advised their customers to remove heavy objects attached to their car keys, such as bulky keychains, rather than fixing the root of the problem itself. This story is not strange. It happens elsewhere as well. In the world of central banking, serious risks can similarly arise from groupthink. There are many rules governing policymaking that policymakers tend to follow rigidly, despite its waning effectiveness. This increases the risks of being blindsided and promotes a culture that is resistant to change. An example of this in central banking is the ‘inflation-targeting framework’ which was considered the international best practice in monetary policy framework for many years before the Great Financial Crisis. My remarks are not a critique of the framework but rather, to highlight that there are other approaches as well. The premise behind the framework is very simple. It is also elegant. If the inflation trend deviates beyond a central bank’s expected target, typically around 2%, the central bank should use its policy tools, namely the interest rate, to bring inflation back to target. Inflation targeting enables monetary policy to focus on domestic variables and respond to external stimulus that impact domestic price stability. Since it was first adopted in 1989, it was seen as a simpler and more transparent policy framework because it allowed the public to easily understand and observe the central bank’s motive, which is ultimately low and stable inflation.
2  All speeches are available online at www.bankofengland.co.uk/speeches  2  In effect the benefits of deep and liquid markets – ease of price discovery, minimisation of basis risk, tight bid/offer spreads – have outweighed the fact that Libor may not be a perfect match to users’ underlying needs. Whilst users of Libor clearly benefit from this concentration of liquidity, the flipside is that it makes the adoption of alternatives to Libor a very challenging task. These network effects are reinforced by market convention, accounting practices, and the frictional costs of changing firms’ systems and risk models. And use of Libor is perpetuated by the need to hedge and manage legacy positions. Overall, there is substantial inertia in the use of Libor. The case for change The financial system’s Libor dependency matters for two reasons. First, as I have argued, in many applications users would be better served by a near risk-free rate: the bank credit component of Libor is in these cases neither necessary nor appropriate. Derivatives markets in particular could be more effective if there were liquidity in alternative reference rates. The prospect of improved market effectiveness might not, on its own, justify change. A second factor adds powerful impetus to the case for change. As the Governor emphasised, the truth is that the term deposit markets which underpin Libor fixings are no longer a liquid source of bank funding. Even a reformed Libor will need to rely on expert judgement to supplement transactional data. That is not a desirable state of affairs.

Although economic developments are favourable, inflationary pressures remain low. Moreover, the Swiss franc remains highly valued and the situation on the foreign exchange market is still fragile. Against this backdrop, the contours of a ‘new normal’ are emerging for central banks. While there are still many significant unknowns in the political, geopolitical and economic arenas, one thing is certain: the environment in which the central banks operate has evolved considerably, mainly due to structural changes. Some of these changes had already begun well before the crisis, but they have accelerated in the intervening period. I am thinking here of the digitalisation of the economy, for example, as well as the emergence of new technologies on the financial markets. In this speech, I would like to outline how the SNB has had to adapt – and continues to adapt – to make sure it is always in a position to fulfil its mandate.