samchain/econo-pairs-v1 huggingface dataset:
(2016)  10  8  8  6  6  4  4  2  2  85  Weaker competitiveness  1925  10  ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  1927  1928  1929  0  0 1924  1925  1926  1927  1928  1929  Source: Grytten (2008)  Source: Grytten (2008)  The events around the time of the first annual address raised issues that are still relevant today. What is the role of the central bank, and how far does it extend in normal times and at times of crisis? NORGES BANK IS BANKER TO THE BANKS The central bank’s overarching goal is to promote economic stability. That lies at the core of our mission to serve the public interest. Low and stable inflation is a precondition for economic stability. Other important preconditions are stability in the financial system and a safe and efficient payment system. The banks’ settlement system, the very core of the payment system, is operated from the central bank. Norges Bank is banker to the banks. Banks can turn to us as lender of last resort when other credit channels dry up. Norges Bank conducts continuous oversight of the financial system. When large shocks hit the economy, our workday abruptly changes. The central bank then takes on a key role in stabilising the markets. Shocks stem from various sources. In the 1920s the problem was insolvent banks. The 2008 financial crisis engulfed the entire global financial system.

Penger og Kreditt 3/05, Norges Bank. 12  In a world of free capital movements, the fixed exchange rate policy came under pressure as the 1990s wore on. For Norway, the development of the oil industry and strong growth in oil revenues also played a decisive role when formulating the new economic policy guidelines adopted in 2001: the fiscal rule for fiscal policy and an inflation target for monetary policy. NORGES BANK ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  This system has served us well for more than 20 years, during a period when the economy has also been buffeted by severe shocks. But we have learned lessons along the way. One lesson is that strictly rule-bound economic policy is not fit for purpose. For interest rate setting, this means that the conduct of monetary policy must be flexible and manage trade-offs between the outlook for inflation and developments in output and employment. And the fiscal rule can no longer serve as a strict budget guideline from one year to the next. Norges Bank has faced different challenges in its 206-year history. A lot has changed since Nicolai Rygg’s day. But economic cycles will continue to shift, and we need to be prepared for new, unforeseen crises. The central bank’s primary mission remains the same: to promote economic stability and ensure confidence in the monetary system. Thank you all for your kind attention during my time as Governor of Norges Bank. Central bank governors come and go, But not the central bank, as you well know.
In our Sydney roadshow, I was particularly impressed by the keen interest and high level of curiosity of the Australian audience, who wanted to understand more what RMB internationalisation was all about and what it meant for them as corporates with trading and investment links with China. We were then at an early stage of this long and exciting journey of RMB internationalisation. At that time, the cross-border RMB trade settlement scheme was still a “pilot” and only covered selected provinces in the Mainland. RMB trade settlement handled by banks in Hong Kong was only some RMB100 billion a month, which is less than one-fifth of the RMB600 billion registered in March this year. 3. The offshore RMB market in Hong Kong has indeed achieved phenomenal progress in the past three years. Hong Kong’s RMB real time gross settlement system registered an average daily turnover of close to RMB700 billion in April this year, which is about twelve times the level when I visited Sydney in 2011. In the foreign exchange market – another area where activities have picked up sharply – we are seeing an average turnover of RMB spot and forward transactions of some $ billion to $ billion equivalent every day. I also note that remarkable developments have been achieved in Australia, with recent data suggesting that Australia’s RMB payments value increased by close to 2.5 times year on year.

The Ministry of Finance has been tasked with setting the level of the countercyclical capital buffer. Norges Bank has been tasked with preparing a basis for the buffer decision and providing advice to the Ministry of Finance regarding the level of the buffer. In preparing the basis for the buffer decision, Norges Bank will exchange information and assessments with Finanstilsynet. Since March of this year, Norges Bank has published an assessment of the need for a countercyclical capital buffer in the Monetary Policy Report in addition to its monetary policy assessment. Norges Bank will give its first advice on the level of the buffer to the Ministry of Finance in connection with the next Monetary Policy Report, to be published at the beginning of December. Text slide: Criteria for an appropriate countercyclical capital buffer In line with the purpose of the countercyclical capital buffer, Norges Bank has formulated three criteria for setting an appropriate buffer rate. The buffer should ensure that the resilience of banks is strengthened during an upturn. The buffer requirement should be viewed in the light of other requirements applying to banks, particularly when new requirements are introduced. One of the most important purposes of the capital buffer is to alleviate stress in the financial system. History shows that the foundation for banking crises is laid during upturns. When financial imbalances build up, this increases the likelihood of substantial losses in the entire banking system.
But I will also assert that, when major disruptions occur, central banks cannot always keep inflation and growth stable within a targeted range. This, in turn, is not a new insight per se, in that it adheres to the central banking consensus that monetary policy should be geared to the medium term, and that, depending on the environment, certain short-term fluctuations in output and inflation are unavoidable. Allow me to begin by providing a definition of what is meant by an independent monetary policy. A country with free movement of capital has two means of achieving monetary policy goals like price stability. First, it can peg the exchange rate of its currency to a foreign currency, thereby adopting the other country’s monetary policy. If the two economies move in parallel and the monetary policy of the other country is sufficiently stability-oriented, price stability can be imported by this means. Or, second, a central bank can pursue a monetary policy that is BIS central bankers’ speeches  1  explicitly tailored to suit the specific needs of that country. The monetary policy trilemma is that, given free capital movement, such a tailored, independent monetary policy is only possible with a floating exchange rate. Of course, as a small open economy pursuing an independent monetary policy, Switzerland is also exposed to global influences, and particularly to those from within Europe. First, trade relations are of central importance; fluctuations in consumer demand within the euro area are reflected in the exports of neighbouring countries, and influence their economies.

8  The table shows values for November 2014, since the SNB’s announcement in December of a rate of –0.25% on sight deposits with effect from January 2015 immediately impacted market interest rates. 9  By January 2016, the situation had eased enough for Danmarks Nationalbank to raise the interest rate to –0.65%. BIS central bankers’ speeches  7  By discontinuing the minimum exchange rate, the SNB regained some of its ability to conduct monetary policy. The new monetary policy stance is beginning to have an impact. Since the minimum exchange rate was discontinued, there have been periods of great uncertainty on the financial markets in connection with Greece, but also with China and other emerging economies. This would normally have caused the Swiss franc to appreciate, whereas the franc has actually weakened slightly over the last 12 months. Nonetheless, the Swiss franc remains considerably overvalued against the euro in real terms. I draw the following conclusion for the third phase: unconventional monetary policy measures are now widespread in Europe and have given central banks slightly more room for manoeuvre. The Riksbank and the ECB are operating quantitative easing programmes. The central banks of the Czech Republic, Denmark, Sweden and Switzerland are prepared to intervene in the foreign exchange market as necessary. And finally, Danmarks Nationalbank, the ECB, the Riksbank and the SNB have all introduced negative interest rates.10 What kind of impact have negative rates had from a monetary policy perspective?
Although average hourly earnings rose more quickly in October―pushing the year-over-year pace up to 2.5 percent – this indicator can be volatile on a month-to-month basis, and it has not been borne out by some other important measures of labor compensation. For example, over the past year, the Employment Cost Index for private sector worker compensation has risen 1.9 percent, remaining within the narrow range of recent years. This is important because my assessment of what constitutes maximum sustainable or full employment depends in large part on how a tighter labor market translates into compensation gains. At the same time, one needs to be cautious about interpreting compensation trends in the current environment. It is possible that factors such as very low headline inflation and weak productivity growth are holding down what workers receive in  2  BIS central bankers’ speeches  compensation. Therefore, because of such factors, compensation growth may not provide a reliable signal about whether we are approaching full employment. To sum up on the growth side, the economy looks to be in decent shape and is likely to continue to grow at a slightly above-trend pace. Spare labor resources are shrinking. But there still is some risk that the growth pace could slow as the trade sector acts as a drag on aggregate economic activity. On the inflation side of the ledger, I have greater concerns because we continue to fall substantially short of our inflation objective of 2 percent for the personal consumption expenditures (PCE) deflator.

In short, the following is needed: •  An insolvency regime which ensures that banks can be effectively closed at a low cost to the deposit guarantee system  •  An effective depositor protection with a quick pay-out to depositors and a credible financing  •  The ability to take special measures, such as guarantees, to avoid the failure of a bank threatening the financial system in its entirety  •  A broad tool box to be able to enforce, also in those exceptional cases, the principle that the state will not bear the losses of shareholders and creditors, where it should be possible to tie conditions to any guarantee issued and with the option of temporary nationalisation as a last resort. But drawing up a broad structure is perhaps the easiest part. After that, it is necessary to find a concrete legal framework. In the end, this responsibility falls on our governments. A few countries seem to have much of this in place already. And some have come quite far in this work and devote quite a lot of resources to the project. Those that have not I think are well advised to get started. It is just never a good idea to set up the fire brigade first when the city is on fire. 10  BIS Review 62/2008  But it is a delicate task trying to find an efficient and legally secure system which will also work cross border.
At our recent Governing Council meeting on 3 February, we acknowledged that “inflation is likely to remain elevated for longer than previously expected.” As Christine Lagarde said, these forces are expected to play themselves out gradually as the economy re-equilibrates and returns to its potential growth rate and the impact of the energy price shocks dissipate. I will not comment further on the expected outlook for inflation – this will be for our next projections on the 10th of March. I will, however, be discussing (i) the theory and practice of forward guidance, in such uncertain times, (ii) and how the ECB might need to adjust its current guidance to manage the path towards a normalisation of monetary policy. I. FG in theory and practice Originally, as proposed by Eggertsson and Woodford in 2003, forward guidance is a clear and powerful instrument at the effective lower bound on nominal interest rates when conventional policy is impotent. Under this strategy, a central bank commits to provide extra stimulus in the future once the underlying adverse shock is over. It does so by announcing it will keep interest rates low for longer, departing from its standard reaction function. As long as financial markets understand this, medium-term nominal interest rates will be lower. In addition, rational forwardlooking agents recognise that this will generate above-target inflation in the future, which lowers expected real interest rates over the whole period, further stimulating demand and inflation from today. This works perfectly in the textbook.

Today, in my personal judgement, it might be considered that the first criteria (with a headline inflation significantly above 2% since summer last year and expected to remain there for months ahead), and the third one (with underlying inflation around or above 2% by most definitions) are fulfilled. At this stage, according to our December forecasts, the remaining one (about inflation remaining at or above 2% for the rest of the projection horizon) is not met. This could possibly change in the next quarters. However, we should be mindful of the uncertainty surrounding our 3year inflation projections in the extraordinary context we are going through, especially when price pressures are originating from sector-specific supply constraints with moderate signs of contagion so far to wages. And there is one additional element, calendar based, introduced by the sequencing: any rate hike should only happen after date X, the end of the net asset purchases. We should not pre-empt this calendar: it is about the credibility of the sequencing, and also about some caution on the most fragile of our criteria – the medium-term forecastbased one. This brings me to a key reminder: the forward guidance never calls for an automatic decision, and always preserves our possible assessment. In our own wording, it is an “expectation”, and the Governing Council has to “see” and “judge”: even if and when the three criteria will be fulfilled, we could take into consideration exogenous or exceptional contingencies, including geopolitical ones.
In addition, the experience of recent years, most recently from Asia shows that it has become more difficult to maintain a stable exchange rate with the liberalization of capital movements and ever larger and more active international financial markets. A response to this would be to allow the exchange rate to float, but in order to maintain low inflation and achieve narrower interest differential vis-à-vis abroad this would call for the adoption of a direct inflation target with the Central Bank entrusted to pursue it. A unilateral link to the euro is hardly an option, as it would yield little in terms of greater credibility of stability and narrower interest differential vis-à-vis those abroad. In addition it has the drawback of not reflecting the composition of Iceland’s external trade, at least for as long as the United Kingdom remains outside the monetary union. A bilateral link would be better, as it would enhance credibility by virtue of the commitment of the European Central Bank to defend the link, and would result in narrower interest rate differentials. The exchange rate risk premium would not vanish entirely because the commitment of the European Central Bank would never be without limits and conditions. It should be pointed out that it is unclear if and when the European Central Bank will be willing to discuss the possibility of bilateral co-operation with countries outside the union. Exchange rate changes could still take place in the case of a bilateral link with the euro.

The Central Bank of Iceland has partly performed this task through its Bank Inspectorate which has been built from the ground up in the Bank and is closely linked to some of the Bank’s other activities, for example in regard to a joint database. Parliament is currently debating draft legislation, which calls for the creation of a new supervisory institution, which would combine all supervision of financial institutions. I cannot deny that the Central Bank is opposed to these ideas for reasons I discussed at this venue last year, and I shall not go into the issue in any more detail now. However, since the government’s wishes in this matter became clear the Central Bank has co-operated wholeheartedly with the Ministry of Commerce in preparing the best possible legislation in this area and in securing the necessary link between the Central Bank and the new supervisory institution and also to ensure that The Central Bank will have all necessary opportunities to guard a sound and effective financial system. In some central banks, which do not have supervision among their responsibilities, such as in Sweden and the United Kingdom, much work has been put into defining the relevant tasks of the central bank. The Central Bank is bound to seek models in these countries when it becomes clear that the Bank Inspectorate will depart.
8 “The Committee currently anticipates reducing the quantity of reserve balances, over time, to a level appreciably  below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system’s demand for reserve balances and the Committee’s decisions about how to implement monetary policy most efficiently and effectively in the future. The Committee expects to learn more about the underlying demand for reserves during the process of balance sheet normalization.” See the Addendum to the Policy Normalization Principles and Plans, June 13, 2017. Minutes to the FOMC’s November 2016 meeting summarize the FOMC’s discussion of its long-run framework and its implications for the long-run balance sheet size. 9 Logan, Implementing Monetary Policy: Perspective from the Open Market Trading Desk, May 18, 2017. 10 See Leonard, Martin and Potter, How the Fed Changes the Size of Its Balance Sheet, July 10, 2017, for detail on  how these transactions work in practice. 11 Interest is not reinvested. Instead, the Federal Reserve’s net income is remitted to the Treasury. 12 This is done by placing noncompetitive add on bids at Treasury auctions and by buying agency MBS on the open  market.

As shown in Panel 10, market participants assign about one chance in four to such a scenario unfolding, so communications about how the FOMC might respond to such an outcome in the future might have the effect of bolstering confidence even today. 12 / 15  BIS central bankers' speeches  Returning to Panel 9, it is notable how much uncertainty there is about the size of the balance sheet, even in the no-zero-lower-bound scenario shown on the left. This likely reflects a few factors: MBS repayments remain uncertain up to the cap; future demand for currency, bank reserves, and non-reserve liabilities is hard to know precisely; and the FOMC has not yet decided on a longer-run framework for the implementation of policy. As a result, it seems appropriate to me that there should be an appreciable amount of uncertainty, which should decline over time as these matters become clearer so long as normalization continues uninterrupted. Conclusion Let me conclude now by reiterating the message of confidence with which I began my remarks. I am confident that the FOMC’s gradual and predictable plan to normalize the balance sheet will reduce the balance sheet’s size at an appropriate pace, that it will promote good market functioning, that it will not disrupt the mortgage market or Treasury debt issuance, and, importantly, that it will mitigate the risk of sharp or outsized asset price reactions.
The existing regulatory framework was simply inadequate to detect and prevent the brewing problems. At one level, inadequate follow-up framework made it difficult to track where the funds were going. But the heart of the problem lay in the loose supervision and examination system in place. Regulatory waivers were common. And the culture evolved to one that encouraged or condoned excessive risk-taking behavior. Compounding the problem were Thailand’s underdeveloped capital markets. The absence of what Alan Greenspan termed a “spare tire” of finance made bank lending the dominant source of corporate financing. Consequently, viable businesses were trapped in the breaking down of the banking sector’s intermediary role with no way out, and the crisis spiraled into a devastating credit crunch. The most significant implication drawn from this lesson is thus a strong financial sector is essential for a country to sail through financial storms. It is perhaps not a coincidence that Singapore and Hong Kong fared better than many other Asian countries during the 1997 crisis, for their financial systems were, and still are, relatively deeper than the rest. A strong financial sector serves as an absorber for external shocks while a weak and inefficient financial sector aggravates the depth of the problem and prolongs the recovery process. Beyond the “hardware” of the physical and financial infrastructure, the “software” of the ethical issues governing the running of the system is also critical. Tales of businesses being endowed with extraordinary treatments from bankers through their cross-holding relationship are probably still fresh in everyone’s mind.

For Thailand to prosper in the future, we can no longer rely on the old way of doing business or, for policymakers, the old way of running the economy. We need a different and more effective paradigm that will not only sustain the current growth momentum but also helped the country meets future challenges. Putting the crisis under microscope reveals critical flaws that beg for new approaches and strategies in all of the four major areas: (1) the real sector, (2) the financial sector, (3) the issue of governance, and (4) the macroeconomic framework. In many respects, these lessons are neither limited to Thailand nor unique to the recent crisis. The challenge is perhaps how to put them into the context of rapidly evolving global and regional economies. Let me start with the real sector. For a brief period in the early 1990s, it seemed that everything was going well. Everywhere one turned, businesses were booming. Demand seemed to always outpace supply. And on top of all that, Thailand was just named Asia’s fifth economic tiger. Little did everyone know, however, that the spectacular economic performance masked certain structural weaknesses in some part of the real sector. As it now becomes all too clear, parts of Thailand’s real sector prior to the crisis were characterized by low productivity and high leverage. With the benefits of hindsight, Thailand’s past rapid growth could be attributed primarily to quantity, that is, the mobilization of capital, labor, and natural resources, rather than quality.