samchain/econo-pairs-v1 huggingface dataset:
As we were making the key rate decision in February, the Finance Ministry was then yet to launch its forex operations as part of the budget rule. It was difficult to gauge the envisaged impact of such operations. The Finance Ministry-conducted purchases of foreign currency could have fomented a short-term deterioration in exchange rate and inflation expectations. Given a number of risks including these, we toughened our rhetoric at the time. To date we see that the foreign currency market has remained steady. The impact of these operations on the ruble exchange rate was immaterial if its strengthening factors prevailed. Fourth, the updates to the outlook are mainly related to 2017, with the mid-term prospects for economic development unchanged. A conservative approach to the baseline scenario assumes oil prices to drop to $ a barrel by the end of 2017. In this case, the average annual oil price will hold near $ in 2017, that is, well above the previous scenario’s assumptions. It would be difficult at this point to make a definitive forecast as regards the potential extension, in the middle of the year, of oil producers’ output cut deal. This is indeed an uncertainty factor. Oil prices may also be under downward pressure coming from rising outputs of shale oil, as well as a potentially stronger dollar on the back of the US Fed rate rise.

Despite the consensus among policy-makers on the importance of financial stability, the economic literature lacks adequate theoretical and empirical studies on the details of the transmission mechanism from financial stability to macroeconomic stability. At this point, academia is expected to do their share in this respect. The two-day conference will stage parallel sessions, panel discussions and presentations on these issues. Banking sector dynamics, macroprudential measures and their impact on macroeconomic stability, systemic risk issue and sovereign debt dynamics are among the topics that will be addressed at the conference. Two of our distinguished guests, Mr. Ricardo Caballero and Mr. Franklin Allen, will be delivering speeches. Mr. Caballero will be presenting a speech on the first day of the conference and Mr. Allen’s presentation is scheduled for the second day. On the second day of the conference, the panel discussion titled “How did the crisis challenge the Central Banking as we knew it? What should (not) change?” will be held, at which senior central bankers will be sharing their country experiences. I think this panel discussion will be very interesting and beneficial for all the participants. The studies that will be presented throughout the conference will contribute to better understanding of the factors threatening financial and macroeconomic stability and developing policies to achieve these two objectives simultaneously. I believe that the conference will also serve as a forum for the participants for exchanging views.
Boris Vujčić: Macroeconomic developments and structural issues in CEE countries Speech by Mr Boris Vujčić, Governor of the Croatian National Bank, at the Roundtable on Macroeconomic Developments of the 16+1 Economies, Magyar Nemzeti Bank (the central bank of Hungary), Budapest, 9 November 2018. * * * Accompanying slides of the presentation. Economic expansion in the CEE region can be expected to continue in the near term supported by still favourable cyclical conditions. However, in many countries pace of growth might moderate, partly due to supply side constraints and maturing business cycles. Potential growth estimates indicate that in all countries output gaps are positive or have been closed, and unemployment rates are close or below pre-crisis levels, pushing-up the wage growth. While such a positive outlook for future growth is somewhat disturbed by rising risks to the global economy, such as escalation of trade tensions or tightening of financial conditions, CEE countries seem to be in a generally good shape to withstand the impact of negative shocks. Current account positions have improved and in many countries turned into surplus, while international liquidity positions are ample. Also, economic recovery coupled with efforts to push through fiscal adjustment programs led to improvement of general government balance and public debt was put on a declining path. Furthermore, financial systems in most countries remain robust and resilient, as attested by withstanding the shocks emanating from the global financial crisis and the European sovereign debt crisis.

And data support such outcome, here on a sample of emerging market countries. There is a strong positive relationship between quality of institutions and human capital on one side and growth on the other. Furthermore, in the context of new EU member states, countries with better institutions tend to withdraw more EU funds, which is another channel through which the government can help to increase the growth potential of a country. When it comes to quality of institutions, developments are not encouraging. If quality is proxied by World Bank’s Worldwide Governance Indicator, there has hardly been any convergence towards Germany, which can arguably be used as a benchmark. Notable exceptions are the Baltic countries where we have seen positive developments also in the aftermath of global financial 1/2  BIS central bankers' speeches  crisis. CEE countries also lag behind when it comes to the quality of human capital compared to those EU countries that achieve the best results in PISA test in Math and Science (Finland, Sweden, Austria, and Germany). Developments over time are also not encouraging as in many countries the PISA results have actually worsened during the last decade, which is a phenomena not confined only to the CEE region, but to the wider Europe. Such developments are on the one side worrisome, but on the other give us the opportunity to streamline and speed up reforms because potential gains can be substantial.
These indicators clearly have an important bearing on macro-economic health: among workers whose disposable incomes have fallen materially below their pre-crisis levels; among savers, the rates of return on whose assets have fallen materially below their precrisis levels and are near-zero in inflation-adjusted terms; and among companies, whose underlying efficiency has flat-lined since the crisis. These trends are also closely linked. Weak productivity has constrained UK companies’ ability to pay higher wages, such that productivity and real wages have fallen in lockstep since 2008 (Chart 3). And this combination of a weak supply side and weak pricing pressures has in turn generated the need for low or negative real interest rates. To give these developments some context, consider a simple index of real wages, real interest rates and productivity growth. Given their recent trends, and with an eye to semantic symmetry, let’s call this an “agony index”. Charts 4 and 5 plot this agony index from 1970 and back to 1870. The agony index is currently at painfully low levels.5 It has been around 5 percentage points below its 1970–2014 average since 2008. Such an extended period of agony is virtually unprecedented going back to the late 1800s, with the exception of the aftermath of the World Wars and the early 1970s. So far, then, so bad. On this evidence, the UK economy is as weak as at any time in the recent or distant past. It is firmly on the back foot.

6  BIS central bankers’ speeches  To illustrate those dilemmas, consider some very simple and mechanical settings for monetary policy as given by a Taylor rule (Taylor (1993)). The simplest of the Taylor rules takes the form: 𝑖𝑡 − 𝜋𝑡 = 𝑟∗𝑡 + 𝜃𝜋 (𝜋𝑡 − 𝜋∗ ) + 𝜃𝑦 �𝑦𝑡 − 𝑦� 𝑡 �  In other words, the real policy rate (it – πt) deviates from its equilibrium rate (r*t) to the extent that inflation (πt) deviates from its target (π*) and output (yt) from its trend (ŷt). In Taylor’s original work, the feedback parameters, 𝜃𝜋 and 𝜃𝑦 , were both set at 0.5 and r* at 2%, in line with its historic average. If we plug measures of inflation and the output gap into equation (1), both historically and using the MPC’s forecasts for the future, we generate the Taylor-rule implied paths shown in Chart 22. Also shown is the path of actual and (looking forward) market-implied policy interest rates at the time of the August 2014 Inflation Report. Both in the years running up to the crisis, and in the initial crisis stages, these paths roughly coincided. Policy was broadly on its Taylor rule-implied path. Since around 2010, however, the two paths have parted company. On the Taylor rule path, monetary policy would have begun tightening at the end of 2009 and interest rates would be fully 2½ percentage points higher today. Taken at face value, this implied trajectory poses a challenge to current policy settings.
To find a reasonable explanation for the continuous higher growth over such a lengthy period, it is not sufficient to point to the stability-oriented macroeconomic policies which, at least in the monetary realm, we have shared with other countries. We must also turn to the microeconomic reforms undertaken since the onset of democracy, encompassing areas as important as privatisation, the labour market and social security reforms, and the liberalisation of numerous markets; notwithstanding, as I shall indicate later, that there is still considerable work outstanding in this area. An excellent example of these reforms is the transformation the Spanish financial system has undergone. Here, the efficiencies generated by liberalisation contributed to all players, in general, turning in a sound performance: bank and savings-bank managers, trade unions and employers' associations, governments and the financial supervisor all thus helped bring about an industry which is today held in worldwide esteem. Nonetheless, although these macroeconomic and microeconomic policies no doubt brought their weight to bear, it would be very difficult to explain what has happened in Spain without turning to other more structural causes. One essential factor of growth in recent decades has been the change in the level of Spanish educational achievement in the 70s and 80s, which meant that those joining the labour market in the 90s had a far higher level of educational attainment than that of previous generations. And as well as higher education, these new entrants were also much greater in number than their predecessors.

We also allow for the wage Philips Curve to be non-stationary: it moves over time, and it is absolutely normal to do so. Reference wage values, social preferences, jobs’ characteristics, skill endowments and even Central Banks’ targets, they all change over time – hence, the impact of wage gaps on inflation cannot be the same in different time periods. The preliminary finding of our model is that inflation does not increase close to or above its target level until the wage gap is closed. For Philips Curve to work, the loss of welfare from a negative wage gap has to be fully compensated first – as a stock measure, not as a flow. The policy recommendation from here is that countries which closed their wage gap should be much more prudent in further wage increases – because they will be seen in inflation much faster and larger than in the recent past. And for countries which have not closed their wage gap the implication is 3/5  BIS central bankers' speeches  that inflation will remain subdued until this happens. I fully agree with the IMF’s recommendation that central banks in NMS with their own currencies should be alert to the inflation risks of higher wage growth, while bearing in mind that raising policy rates could trigger capital inflows and exchange rate appreciation – which could further deepen current account imbalances. While the real monetary policy stance may differ between euroarea and emerging Europe, there is broad heterogeneity even among emerging Europe.
To achieve the primary objective of price stability, as Christine Lagarde simply and clearly put it, “the (effective) transmission of monetary policy is just as important as monetary policy itself”. And this transmission applies towards all economic players, along all financing channels, and in all countries. 3/5  BIS central bankers' speeches  Thus, as early as the critical phase in March, it was already essential (i) regarding interest rates, to support favourable financing conditions and to contain the adverse effects of strains on the financial markets, (ii) regarding volumes, to guarantee sufficient liquidity for business and households through bank channels, and lastly (iii) to limit the risks of financial fragmentation within the euro area. When we need to meet several intermediate objectives at the same time, we need to expand our range of instruments and strengthen their intensity. Here, economists often refer to the “Tinbergen principle”, but it does not necessarily require strict specialisation with one single instrument assigned to each objective. Our choice at the ECB is more pragmatic: since March, we, like the Fed and the Bank of England, have greatly expanded and strengthened our armoury of instruments and in so doing refuted all those – and remember there were a lot of them only a few months ago – who feared that the central banks were “running out of ammunition”. However, some of our instruments deal with the long-lasting, underlying low-inflation environment that preexisted the crisis – and which has not gone away. It is our “baseline game”, if you will.

These two anchors, which are enshrined in the Treaty, form the legal basis for our action, but, more than that, they are the basis for the confidence that 76% of euro area citizens have in our currency: this is our essential asset. Paradoxically, at a time when the ECB and the Banque de France are doing more than ever before, criticisms are being raised over their mandate, and whether it should be extended beyond price stability to include debt sustainability or the fight against the health crisis, and over their independence, and whether they should be placed “under political control”. With regard to independence, there are sometimes even strange resonances between Karlsruhe and certain debates in Italy or France. I would therefore like to clarify the reasons behind these two anchors and set out precisely what they contain. What does the future hold for price stability? Our price stability mandate is defined as inflation below, but close to, 2% over the medium term. This 2% figure has been the subject of frequent debate, but it represents the equilibrium point in discussions by economists – who all recommend a target of above zero – and is the target currently pursued by all major central banks. Naturally, there is a huge amount of uncertainty over how the economic environment will evolve, but this is probably less true for inflation. Nonetheless, it is important to share a few insights into its possible trajectory.
For this to become a reality, it will require a change in mindset and vision, coordination and investments by the industry today, to position itself for the future for a much bigger role in financing intangibles. The real economy is undergoing significant transformation and the financial sector has to keep pace. To remain relevant, just as financing looked to physical assets in the industrial age, it must look to intellectual assets in the information age. A first step needs to be taken. It needs to be taken expeditiously. 2  BIS central bankers’ speeches

Increasing productivity is the key to securing our welfare and the stability of our social security systems. BIS Review 63/2004  1
And they include weak productivity trends, emanating from the precrisis period and reflecting in part the misallocation of resources into construction and other low productivity sectors.5 In this environment, stabilisation policies become less effective in boosting demand and an increase in demand becomes less effective in stimulating economic activity. Fiscal space is squeezed by high public debt, and the impact of monetary policy on investment and consumption is blunted by high private debt. The positive impact of higher demand on jobs is constrained by the partially structural nature of unemployment, such as the skill mismatch between job seekers and vacancies, low mobility of workers and the priority given to insiders. Moreover, it is also constrained by capital market fragmentation, i.e. the inability to channel savings where investment is needed to create jobs. And absent other policies, stimulating demand may in fact only delay the necessary restructuring of the economy towards higher productivity sectors. This is where supply-side policies – by which I mean structural reforms – can help empower demand. By raising potential growth and hence future income, structural reforms create more space for governments, firms and households to spend today. By reactivating and reskilling the workforce, they allow employment respond faster to that higher demand. And by helping the economy to restructure, they ensure that higher demand is channelled towards the right sectors, and thus accelerates rather than retards the creative destruction process.

This seems to be feeding, with about a two years delay from the start of reforms, into a gradual recovery in employment. But these achievements are not yet showing any signs of feeding into productivity growth. Total factor productivity has actually fallen by 0.8% in the euro area since 2008, whereas in the US it has grown by almost 7% in the same period. Higher competitiveness may well contribute to raising productivity, but we know that cheap labour alone will not produce innovative firms. Thus, I see a need today to rebalance our focus: to focus less on achieving internal devaluation, and more on raising productivity. And this entails a broader set of reforms than countries have adopted thus far. Creating a productivity-enhancing environment For advanced countries in today’s globalised economy, productivity is increasingly linked to investment in knowledge-based capital and moving closer to the technological frontier, especially in high value-added sectors such as the digital economy. While this is ultimately about the effort and ideas of individuals, not governments, public policy plays a crucial role in creating the right environment.
This ratio has doubled in the United States since 1980, while it has remained relatively stable in Europe. xvi Our social welfare system plays a key role here: it even defines Europe, whether it is based on a Bismarck or a Beveridge model. Secondly, the European model organises industrial relations and economic power relations in a more balanced way between employers and employees. This is enshrined in the Charter of Fundamental Rights of the European Union, whether one follows the Nordic traditions of negotiation or the Latin ones of regulation. Finally, a high level of public services remains a key factor of integration, from transport to health. As regards the level of public spending, there are significant differences between European countries: unfortunately, France displays the highest level of public spending, at 56% of GDP, and must make its public sphere more efficient. But the euro area average, at 47% of GDP, illustrates a different societal choice to that of the United States and the United Kingdom, with ratios of 35% and 38% respectively, and even more so the large emerging countries Redistribution and social welfare system + industrial relations + public services: let us call it the European social model, or "Soziale Marktwirtschaft" if one is German and more liberal. The vast majority of our fellow citizens, beyond their national or political differences, are attached to this common matrix. Let us affirm it, without shame: it is not only a legacy from the past, it is an asset, today.

Rapid credit growth, emerging external imbalances with growing current account deficit (reaching at one point 10% of GDP), and consequently rising external debt. Price bubbles in the real estate and equity markets coupled with the expansion of the construction sector all provided red flashing lights far ahead of the 2008 global market mayhem. In order to preserve stability of the banking system throughout the crisis, resolute action had to be taken years ahead of the global financial crisis. In the period of large capital inflows, raising interest rates to tame the cycle was not a policy option due to the risk of exacerbating capital inflows even further. Therefore, already in 2003, in the early phase of the cycle, the CNB started to implement a range of measures to limit excessive lending and the increase in foreign debt, which were gradually adjusted and tightened until 2007. Stringent capital and liquidity requirements, way above and beyond anything we have available in the current macroprudential setup, were necessary in order to stem excessive risk-taking and instil resilience into the system to cope with a potential fallout. Such measures were at that time labelled (by banks and some of the colleagues) "administrative" tools, but would later be classified under macroprudential policy instruments. For example, implicit tax on credit growth (when we asked banks to subscribe zero yielding CB bonds for any  euro of credit growth over 12% per annum), and high marginal reserve requirement on foreign borrowing by banks, together with high capital requirements.
The region is mostly exposed to the European markets, but to the extent that the US tightening affects European financial markets it may have negative implications for the region through the interest rate or liquidity channel. Having in mind the state of the fiscal finances particularly vulnerable segment seems to be the government sector. The screening of the fiscal position of the countries in the region, shows that without doubts financial crisis took a toll on the fiscal positions of the countries. Against the background of countercyclical fiscal policy headline balances deteriorated sharply and the public debt went on a rising track. The deterioration in the fiscal position and lack of fiscal space (due to low initial space before the crises) emphasized the need for consolidation. Most of the countries of the region recognized it and embarked on the consolidation path. In the 2013-2015 period the budget deficit figures show that nine out of fourteen countries of the region have already reduced the deficit level compared to the 2008-2012 period. The other five countries (Macedonia, Albania, Serbia, Bulgaria and Slovenia) increased the deficit  reflecting idiosyncratic factors, countercyclical policy (Macedonia, Bulgaria), or recognition of implicit liabilities (emergency recapitalization of the country's banks in Slovenia). The same dynamics is more or less mirrored by the government debt data. After the strong initial debt rise, the consolidation phase imposed slower borrowing pace, however in most of the countries the debt continued to rise.

Chart 10: External positions and assets prices indicators y/y growth rates of stock market indices  Current account deficit in % of GDP Region  CEE  SEE  SRB  Baltics  ROM  HUN  CRO  MKD  BIH  SLO  BUL  POL  15.0  5  10.0 0 5.0 -5  0.0 -5.0  -10  -10.0 -15  -15.0 -20.0  -20 2007-2004  2012-2007  2015-2013  -25.0  AVERAGE(2009-2012)  -25  IIP, net as % of GDP Region  CEE  AVERAGE(2013-2016)  Real Estate Prices, y/y change in % SEE  Baltics  0  BUL  CZR  EST  CRO  LAT  LIT  HUN  POL  ROM  SLO  MKD  SRB  12  -10  10 8  -20  6 -30  4 2  -40  0 -50  -2 -4  -60  -6 -8  -70 2007-2004  2012-2008  2015-2013  average 2010-2013  average 2014-2016  Source: International Monetary Fund, Balance of Payments Statistics, WEO October 2016 Database, Eurostat. Despite the absence of sizable inflows, relatively high external financial exposure of the region underlines the risks in case of global tightening of the financial conditions in the context of tightening of the US monetary policy or a “surprise” tapering by ECB.