samchain/econo-pairs-v1 huggingface dataset:
What monetary policy can do is to maintain stability without unnecessary fluctuations in output and employment. Overall employment is also influenced by wage formation. If wages increase at an unsustainable pace, employment will decline and unemployment will gradually increase. Monetary policy cannot prevent an increase in unemployment that is due to a wage-driven cost shock. When there is confidence that monetary policy will contribute to low and stable inflation over time, it can contribute in the short term - under certain conditions - to smoothing fluctuations in output and demand. In the short term, there is a trade-off between the objectives of inflation stability on the one hand, and output and employment stability on the other. An aggressive monetary policy will rapidly bring inflation to the target. This will cause wide fluctuations in the real economy. The interest rate can also be changed more gradually, which will have less impact on the real economy but cause more pronounced fluctuations in inflation. By influencing inflation over time, we can ensure that an overly aggressive monetary policy does not in itself cause unnecessary disturbances to the economy. The impact of monetary policy occurs with considerable and variable lags. Our analyses indicate that a substantial share of the effects of an interest rate change will occur within two years. Two years is thus a reasonable time horizon for achieving the inflation target.

International inflationary impulses are generated via prices for imported consumer and intermediate goods. These inflationary impulses will partly be influenced by developments in international commodity and consumer prices and by the exchange rate. Interest rates influence inflation through their impact on domestic demand and on the market for NOK. When interest rates rise, it is more profitable to save and more costly to borrow. This dampens consumption and investment and hence aggregate demand. Lower demand in turn curbs the rise in prices and wages. Higher interest rates make it more attractive to take krone positions and borrow in foreign currency. As a result, higher interest rates normally lead to an appreciation of the krone. This reduces prices for imported goods. In addition, a strong krone reduces activity and profitability in the internationally exposed sector. It is important to be aware of the relationships between employment, output and inflation. If there is a shortage of labour and other economic resources, a tight monetary policy stance will reduce inflation by affecting aggregate demand. Conversely, when unemployment is high, low interest rates stimulate demand, which will contribute to stable wages and prices. A monetary policy stance that is aimed at stabilising inflation will thus also contribute to stabilising aggregate output and employment. In the long term, monetary policy determines the average level of inflation. Output is determined by the supply of labour, capital and technology and by productivity growth. Attempts to increase output beyond the total capacity of the economy will lead to inflation in the long run.
Ravi Menon: The work of the NGFS in four emerging issues in climate change Opening remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore and Chairman, Network for Greening the Financial System (NGFS), at the NGFS Workshop, Singapore, 26 April 2023. *** Good morning, ladies and gentlemen. I am delighted to welcome you to the inaugural NGFS Workshop in Singapore. We held our annual NGFS Plenary meeting yesterday. We discussed how the NGFS can continue to push the envelope in greening the financial system: to strengthen the resilience of the financial system to climate and environmental risks and; to encourage financing flows to support the transition to a net-zero world. The NGFS is well-placed to do this – we are a coalition of 125 central banks and financial regulators from over 90 jurisdictions. Our size enables us to make an impact globally and our diversity enables us to harness multiple perspectives. The work we do is not only important but urgent. Climate change is already happening – its physical manifestations are becoming increasingly evident – especially here in Asia. We are already seeing unprecedented heat waves, floods, and agricultural degradation. One of the key roles of the NGFS is to build capacity and capabilities among central banks and supervisors to deal with the climate challenge. This inaugural NGFS Workshop, with more than 150 participants from over 60 institutions, will discuss cuttingedge economic and financial issues related to climate change and nature loss.

During 2013, consumer spending increased by 2.2%, while housing investment – which includes both the construction of new dwellings and the value added in the facilitation of housing transactions – rose by almost 10%. Together, these two factors accounted for around two thirds of the rise in activity, though note that is in line with their overall share in GDP. This pickup in household spending has not so far been driven in the main by faster growth in incomes: real household income after tax rose by just 1% in the year to 2013 Q3. Press reports sometimes characterise the rise in spending as being fuelled by borrowing and so destined to end in tears. This is not really the case. It is true that unsecured lending growth has picked up over the past year, but the pace of growth is still well below the levels prevailing during the pre-crisis period. And while there has been an expansion in gross mortgage lending accompanying higher housing activity, there is little sign that this has been used to release housing equity in order to finance higher consumer spending. The rise in spending has, though, been associated with a reduction in the fraction of income that is saved. This rose sharply in the aftermath of the collapse of Lehman Brothers as households responded to the increased uncertainty about income and job prospects by building up extra savings, or reducing their debts, as a precaution.
Reflecting the strength of the US dollar, the Sing dollar, along with most other major currencies, depreciated against the US dollar in the first half of this year. However, the Sing dollar appreciated against the euro, the Australian dollar, pound sterling and some of the regional currencies over the same period. The external environment has since strengthened. The industrial countries except Japan are enjoying strong economic growth. The regional economies have shown more vigour and resilience than was expected. Against these positive developments, Singapore’s GDP rose by 5.4% in 1999. The economy grew further by a robust 8.4% in H1 2000. Both external and domestic demand have expanded strongly. Real non-oil domestic exports grew by about 12% in the first six months of 2000, boosted by the continued strength of global electronics demand. The turnaround in the regional economies has underpinned strong service exports and boosted the commerce and transport and communications sectors. Domestic consumption has grown steadily in tandem with labour market conditions and overall sentiment, while investment spending has recovered strongly on the back of a surge in investment in machinery and equipment. Despite the robust economic recovery, inflationary pressures remain subdued. CPI inflation was 0% in 1999, rising moderately to average just 1% in the first six months of 2000. (Based on the old CPI basket before the revision introduced early this year, measured CPI inflation in 1999 would have been slightly higher at 0.4%.)

With regard to legislation, I also believe that further supplementary measures will be needed in future. I will return to this later on. During the recent financial turbulence the Riksbank has not only had regular contacts with other authorities and the political system – we have also had closer contacts with market participants than usual. Central banks around the world have also had close cooperation with regard to reducing the strains in the financial markets in various ways. So what have we at the Riksbank done to make the markets function better? Improving the functioning of the markets The Swedish banks have mainly experienced two problems. One has been the lack of access to more long-term funding in Swedish kronor. The other has been the limited possibilities to borrow in US dollars. As I mentioned earlier, it has been much more difficult and costly for the banks to obtain financing other than at very short maturities. The banks’ possibility to finance themselves is of course important to financial stability. It also affects other interest rates in the economy and thereby the impact of monetary policy. We at the Riksbank try to counteract these effects of the financial turmoil. We have therefore offered the banks financing – against collateral and at an interest rate – at longer durations than normal, and than what is currently available in the markets. We have so far granted loans in Swedish kronor at maturities of three months and six months to a total of SEK 203 billion.
The authorities in many countries implemented powerful fiscal policy measures to limit the economic impact of the outbreak. Central banks reduced policy rates and took substantial action to stabilise financial markets. Many central banks have stretched monetary policy further than we did and have implemented measures that were previously considered unconventional. The measures have included the provision of liquidity in the form of loans to the banking system and programmes involving government and corporate bond purchases. Policy rates among Norway’s trading partners are likely to be close to zero for some time ahead. The global activity level picked up sharply during summer 2020, before higher infection rates and stricter containment measures held back the recovery through autumn. Despite new waves of infection and lockdowns, overall activity has held up through autumn and winter. As a growing portion of the adult population is vaccinated, growth among Norway’s trading partners is expected to pick up. New, more contagious virus variants, vaccination problems and high infection rates in some emerging economies are still clouding the economic outlook. Substantial uncertainty and financial market volatility A weaker global economic outlook led to a marked fall in oil prices in spring 2020. Together with heightened uncertainty and financial market stress, this led to a sharp depreciation of the krone. The krone reached record-weak levels against a number of currencies in March. At the same time, we saw that the NOK market was functioning poorly. To better support market functioning, Norges Bank made extraordinary NOK purchases in the foreign exchange market.

In the first months of 2020, CPI inflation slowed substantially, reflecting a fall in electricity prices. The rise in the CPI adjusted for tax changes and excluding energy products (CPI-ATE) moved up through spring and summer and remained above the inflation target, primarily owing to higher imported goods inflation. Higher imported inflation reflects the krone depreciation in early 2020. Annual CPI inflation was 1.3 percent in 2020, while CPI-ATE inflation was 3 percent. Towards the end of 2020, higher electricity prices pushed up CPI inflation. In March 2021, the 12-month rise in the CPI was 3.1 percent, while underlying inflation was somewhat lower. Surveys indicate that inflation expectations are firmly anchored around the 2 percent inflation target. In the immediate aftermath of the Covid-19 outbreak in Norway, housing market turnover fell and house prices edged down. But through spring 2020, housing market activity picked up and prices rose. In April 2021, house prices were more than 12 percent higher than at the same time in 2020. Growth in household credit increased slightly through 2020, but is still lower than in the 2/4  BIS central bankers' speeches  years prior to the pandemic. Economic policy Let me now say a few words about the economic policy conducted since Covid-19 hit Norway. Fiscal policy has taken the lead and played a decisive role in limiting the adverse economic impact of the pandemic and the measures to contain it.
Relative to GDP, the government bond market is much smaller and less liquid than in many other countries, with a large proportion of foreign owners. If Norges Bank had conducted an asset purchase programme in Norway, it is unlikely that foreign investors would have considered other Norwegian securities. Many investors would probably have moved the money from the sale out of Norway. This could have stimulated the economy through a weaker krone exchange rate, but what the extent of the exchange rate reaction would be is highly uncertain. The introduction of a government bond purchase programme in Norway could also lead to market disruptions. This cost must be taken into account. A further reduction in the number of outstanding bonds would reduce liquidity in a market that is already small. Instead, Norway’s economy requires other solutions. Foreign central banks have also provided extraordinary loans to banks and purchased bonds backed by residential mortgages (covered bonds). We associate such instruments with financial market turbulence. In periods of considerable turbulence and high financial market risk premiums, these instruments can reduce banks’ funding costs and increase the predictability of banks’ funding. The purpose is to prevent an abrupt fall in credit growth from increasing the risk of a severe economic downturn or having an adverse impact on an already weak economy.

Chart: The real interest rate minus the neutral real interest rate However, both in 2004 and following the financial crisis in 2008, the real interest rate was almost 2 percentage points lower than the estimated normal interest rate, with a somewhat larger gap after the fall in oil prices in 2014. Looking back, we can safely say that the Norwegian economy fared relatively well through these downturns, with some help from other factors. After the financial crisis, high oil investment cushioned the downturn, and in 2014 a weaker krone gave the economy an extra boost. In addition, fiscal policy provided substantial support in both cases. A future severe downturn could have a greater impact, with more pronounced declines in both employment and inflation. We must therefore take into account that situations could arise that require measures other than cutting the policy rate towards zero. So we should examine the contents of the monetary policy toolkit in Norway and ask not only when the tools should be used, but also how far the limits of monetary policy should be stretched in such a situation. The policy rate The policy rate is the key monetary policy instrument. Monetary policy is effective when changes 2/9  BIS central bankers' speeches  in the policy rate pass through to market rates. Monetary policy is more effective when central banks successfully influence interest rate expectations. A downturn in the Norwegian economy should initially be countered by lowering the policy rate.
Global growth momentum has continued to slow down. At the same time, inflation in many countries is markedly above central banks’ targets. Accordingly, numerous central banks have further tightened their monetary policy. In our baseline scenario for the global economy, we expect this challenging situation to persist for now. Global economic growth is likely to be weak in the coming quarters, and inflation will remain elevated for the time being. Over the medium term, however, inflation abroad should return to more moderate levels, not least due to the increasingly tighter monetary policy in many countries. Our scenario for the global economy is subject to significant risks. The energy situation in Europe could worsen again. At the same time, high inflation could become embedded and require renewed stronger monetary policy responses abroad. Finally, the coronavirus pandemic remains an important source of risk for the global economy. Swiss economic outlook  What is the economic outlook for Switzerland? GDP grew at an annualised rate of 1.0% in the third quarter. Economic momentum thus remained similarly modest as in the preceding quarters. While many service industries fared well, there was a renewed slight decline in value added in manufacturing. The situation on the labour market remained positive. Employment continued to rise, and unemployment decreased again slightly. Overall production capacity has been well utilised. Switzerland’s GDP is likely to grow by around 2.0% this year. However, weaker demand from abroad and the high energy prices are likely to curb economic activity markedly in the coming year.

There are also numerous examples of tax systems discriminating between domestic and international financial transactions, which of course impedes the customers’ incentives to use foreign suppliers, even if they offer more favourable terms for the actual service. Integration contributes to greater welfare Despite the difficulties in moving ahead more quickly with financial integration in the EU, there are estimates that it may be extensive enough in the future to make a contribution of more than one half of 1 a per cent to GDP on an annual basis. The actual figure should perhaps not be seen as exact, but there is reason to expect an unequivocally positive connection between financial integration and real growth on the basis of the development trends observed so far. A larger market makes it possible to benefit from economies of scale and economies of scope. This means increased economic welfare for the financial system’s customers, provided that a sufficient degree of competition is maintained on the market and that there are efficient systems for supervision and oversight to ensure the stability of the system is upheld. If, for instance, European securities funds could operate under the same market conditions as American ones, they could become much larger than they are now. According to the same source as above, this could entail annual savings for European fund savers of 5 billion euro 2 close to 50 billion kronor! More diversified demand A more efficient supply also presupposes changes on the demand side.
While in the US expectations of an interest rate rise were mounting, there were signs of further monetary policy easing in the euro area from mid-year onwards. The euro subsequently weakened significantly against the US dollar. This in turn affected the EUR/CHF rate, which had already been close to the minimum exchange rate for some time. As a result, the Swiss franc largely followed the euro downwards. Nevertheless, at the mid-December monetary policy assessment, we were still convinced that the minimum exchange rate was the right instrument for ensuring appropriate monetary conditions. Shortly thereafter, however, the euro depreciation gathered pace sharply, and pressure on the franc increased dramatically. It became clear that a minimum exchange rate of CHF 1.20 per euro was no longer tenable. Only sustained currency market interventions of rapidly increasing magnitude would have allowed the SNB to uphold the policy. Faced with these fundamental changes in international conditions, we came to the conclusion that the minimum exchange rate could only have been maintained through an uncontrollable expansion of the balance sheet, potentially even to a level several times higher than Swiss GDP. The risks associated with such a balance sheet expansion would have been out of all proportion to the benefits for the economy. An uncontrollable expansion of the balance sheet would have severely impaired the SNB’s ability to conduct monetary policy in the future and jeopardised the fulfilment of its mandate in the long term. On the one hand, the future use of currency interventions would have been severely constrained.

Central banks in the advanced economies increasingly began to resort to unconventional instruments. At the SNB, these included long-term repos, purchases of Swiss franc-denominated bonds issued by domestic, private-sector borrowers and interventions in the foreign exchange market. It is worth noting that the SNB had intervened only very rarely in the foreign exchange markets between the early 1980s and 2009. And on the occasions when it had, the SNB’s interventions had typically been small-scale and had been coordinated with the Group of Ten central banks. BIS central bankers’ speeches  1  This changed in March 2009, when, having reduced the short-term interest rate to near zero, the SNB began purchasing foreign exchange in an effort to counter upward pressure on the Swiss franc and prevent an undesirable tightening of monetary conditions. The first escalation in the euro area debt crisis in the spring of 2010 required the SNB to make extensive foreign currency purchases; these were provisionally halted in June 2010 once the economic recovery had gained a foothold. In the first half of 2011, the situation in the euro area took another turn for the worse. Other euro area countries were being dragged into the crisis. The global economic outlook deteriorated and uncertainty on the financial markets was compounded by the US budget dispute. Upward pressure on the Swiss franc was immense at this time. In August 2011, the real export-weighted Swiss franc exchange rate was 40% above its long-term average (cf. chart 2).