samchain/econo-pairs-v1 huggingface dataset:
With a four per cent return on the Petroleum Fund, the use of petroleum revenues will rise to almost five per cent of mainland GDP in 2010. The inflation target provides an anchor for expectations concerning future inflation and interest rates. The inflation target is set at 2½ per cent. Monetary policy affects the economy with a lag. The current level of inflation does not provide an adequate basis for determining the level at which interest rates should be set today. 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. Economic agents can act on the assumption that the inflation rate will be 2½ per cent. If it appears that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased. If it appears that inflation will be lower than 2½ per cent with unchanged interest rates, the interest rate will be reduced. There is symmetry here. It is equally important to avoid an inflation rate that is too low, as it is to avoid an inflation rate that is too high. The interest rate is the most important monetary policy instrument. It affects price inflation through two channels: demand for domestic goods and services and the krone exchange rate. Changes in labour costs influence the rise in prices for domestically produced goods and services.

Growth in public spending from last year to this year is estimated at seven per cent. This is considerably stronger than the growth in value-added in the private sector of the mainland economy, which is estimated at around four per cent. The guideline for fiscal policy has been followed closely. Real growth in public consumption is estimated at 1½ per cent. In other words, growth in the production of public services will be moderate, even though public spending is rising sharply in nominal kroner terms because of the steep increase in the cost of producing public services. This reflects high wage growth in the public sector. There have also been substantial increases in transfers to the household sector in connection with our social security system. As a result, most of the strong growth in central government allocations translates into a sharp rise in household consumption, while growth in public service production remains moderate. This is only to be expected when there is steep increase in public sector allocations in an economy where there are no available resources. Employment and labour force participation rates are high. The labour market is tight. Unemployment remains low, with limited available resources. There will be slow growth in the labour force. Working hours have been reduced by increasing the number of vacation days. In addition, outflows from the labour market have risen over the last few years as a result of early retirement and the use of disability pensions.
But why should we care about these imbalances? After all, there is no reason why all countries in the world should be balanced at all times, as these imbalances simply reflect the need for funding current or future consumption and investment. However, excessive external imbalances may become a source of concernbecause the funding of deficit countries by surplus economies is subject to “sudden stops” and even reversals.1 Experience suggests that large imbalances are often a leading indicator of subsequent crises and sudden stops. As shown by Philip Lane in one of his numerous contributions to this topic,2 current account balances prior to the Great Financial Crisis exceeded levels consistent with underlying economic fundamentals and thus implied large and costly adjustments thereafter. These vulnerabilities are not confined to emerging market economies: large and persistent current account deficits may also precede financial crises in advanced economies,3 including in the euro area. I will structure the rest of my talk as follows. First I will talk about the determinants of the current account, focusing on the role of the exchange rate. In the second part I will say a few words about the composition of external funding (gross and net capital flows). Finally I will conclude with a discussion of available policy options that could address the persistence of current account imbalances, globally and within the euro area. * * *  1. The determinants of global imbalances, and their adjustment mechanisms The economic and social costs of correcting current account imbalances are potentially dramatic.

Philipp Hildebrand: Switzerland and global competition - an all-purpose strategy Summary of a speech by Mr Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the University of St Gallen, St Gallen, 29 August 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch)  *  *  *  Openness was one of the major factors that made Switzerland one of the richest countries in the world. A significant portion of our industry, and one upon which our current prosperity is based, is the direct or indirect outcome of foreign expertise and the efforts of foreign entrepreneurs. These people were attracted to Switzerland – particularly in the 19th century – by its openness and its stable, liberal environment. Openness promotes competition, innovation and progress, thereby securing sustained prosperity. But Switzerland strayed from the straight and narrow when it began erecting barriers to competition – barriers that provided ever greater protection to its domestic market. The ensuing insulation of the domestic market is probably one of the main reasons for Switzerland's growth slump today. External trade policies are always domestic market policies as well. Consequently, external trade policies have instruments that can be effective in opening up the domestic market from outside. This openness to external trade is of utmost importance, therefore, not only for exporters, but also for the domestic market. Being open towards Europe and towards other trading blocks is not mutually exclusive.
The persistent decline in long-term rates has been accompanied by a sharp increase in debt levels in many countries. Heavily indebted firms, households and government had to embark on an extensive deleveraging process. Weak growth prospects have restrained the willingness to invest. Heightened uncertainty following the crisis may have reduced risk appetite. The result is that the effect of policy rate cuts has diminished. For the countries that took the lead, a loose monetary policy appears to have worked. In the US, the recovery has been on track for a while and unemployment has declined. Before Christmas, the Federal Reserve raised its policy rate for the first time in nine years. In Europe, the recovery remains hesitant. In emerging economies growth is slowing. Since the beginning of the year, global financial markets have been marked by considerable turbulence, likely owing to increased uncertainty about global economic prospects. The period of low interest rates is likely far from over. The headwinds from the financial crisis are still being felt by many large economies. With both interest rates and inflation close to zero, room for manoeuvre in monetary policy is limited. Central banks will have little left in their arsenal in the face of a new downturn. Other policy areas will then have to take on a greater role. A solid financial system over time An environment of persistently low interest rates may pose challenges to financial stability. Low interest rates are still driving up debt levels, making economies vulnerable to shocks.

BIS central bankers’ speeches  1  With only a few large export industries, changes in Norway’s terms of trade have a greater impact on our economy than on other economies in our region. In the early 2000s, international prices moved in our favour. The fall in oil prices over the past couple of years has changed the picture. We are now faced with the negative implications of a largely oildependent Norwegian economy. 2  BIS central bankers’ speeches  It is not the first time Norway’s terms of trade have taken a turn for the worse. The same thing happened after the First World War and in the 1980s, with severe repercussions for the Norwegian economy both times. The experience gained from these periods has contributed to shaping today’s monetary policy framework. The road from the silver standard to today’s inflation targeting regime has not been without bumps. It is fair to say that monetary policy in the Bank’s first 100 years was fairly successful. The prevailing environment of hyperinflation and a loss of confidence in the value of the currency posed a challenge, but after full silver redemption had been established in 1842, the Bank was able to stand by its promise to honour its own banknotes, first in silver, then in gold. This policy had a stabilising effect on prices. The period is referred to as the heyday of stable money. This period of stability came to an abrupt halt when the First World War broke out.
The westernmost of the transition countries have typically liberalised the most, adopting policies and structures which are already very close to those of their EU neighbours; while, further East, reform and market-based operations are still viewed with some scepticism (everyone of course pays lip service to the benefits of and need for market reform and structural adjustment, but many do not in their hearts believe it will work for them), and the markets that have been introduced are subjected to discretionary administrative controls - particularly in crises. Partly because of the influence of the IMF and other western advisers as well as, in the case of EU applicants, the need to harmonise with EU law and practice, the legislation governing the new central banks usually follows a common model, giving them autonomy to pursue an objective of monetary stability. What is interesting is that the aspects of monetary control whose merits we debate in the west - the degree of independence of the central bank, inflation targets versus monetary targets, fixed or floating exchange rates - have in terms of results been of secondary importance to the understanding and acceptance of the case for reform on the part of the public, parliament and government. There is little benefit to a central bank BIS Review 33/1997  -6-  being independent of government if the parliament is able to force it to grant subsidised credits to favoured sectors.

It is unlikely to make sense to have 15 (and certainly not 25) teams of economists analysing the causes of changes in the velocity of euroM4. But I do not wish to give the impression that EMU, even if it comes about on something roughly approaching the current timetable, will be the ‘end of history’ as far as European central banking is concerned. I suspect that central banks in Europe will continue to display great diversity, and will continue to evolve in different directions, and at different speeds, in response to the characteristics of their local habitat. What is important is that they should be responsive, learning and self-critical organisations, ready to react quickly to changing circumstances. They must also, in my view, display their accountability, perhaps more so than in the past. With the greater responsibilities which European central banks, East and West, have assumed in recent years, comes a greater need to explain the basis on which decisions are made, and to account for the resources deployed in making those decisions. That accountability runs partly to the Treasury, who exercise financial discipline over us, partly to Parliament - whose growing interest in our affairs we welcome - and partly to the broader community. I see this series of lectures fitting within that context, and have been pleased this evening to have the opportunity to set out some more recent reflections, from within the Bank, on the way we exercise our functions on the people’s behalf.
But if successfully executed, these objectives are mutually reinforcing and will lay the foundation for a more sustainable and vibrant First World economy. Moderation in growth Why is China growing more slowly? As China reaches a more mature stage of development, it is simply unrealistic to expect it to grow at the same rate as before. China is confronted with the reality of supply-side constraints that every economy eventually runs into. •  According to UN projections, China’s working-age population (aged 15–59), is projected to shrink by 0.6% each year over the next 15 years. Slower growth does not mean anaemic growth. China may no longer grow at 8–10%, but it is well positioned to grow by 6 to 6.5% for the next five years. With the right mix of structural reforms, there is substantial scope for China to achieve faster catch-up in productivity and income levels. •  China’s per capita GDP is modest by international standards and its labour productivity remains well below the frontier. •  The less developed regions in China still have scope to grow at rates that are higher than the national average, and this process of internal convergence is itself an important source of future productivity growth. The large size of the Chinese economy means that, at even more moderate rates of growth, the incremental demand from China will be quite substantial in absolute terms – and this is what matters for the global economy.

So what could account for the recent poor productivity performance? One possibility is that the weakness of measured productivity growth may exaggerate the true extent of underlying weakness. Let me explain. An encouraging aspect of the recent recession is that although unemployment increased, it rose by far less than we might have feared given the depth of the recession. The recent data on employment and unemployment are worrying in that context, with unemployment edging up over the summer, after having previously fallen by over 50,000 from its peak in early 2010. If this weakening in the labour market continues that could materially change the relationship between output and employment. But to date, companies appeared to have held onto a greater proportion of their labour force than in past recessions. My own experience of speaking to businesses at the depth of the recession is that this was driven by a desire to retain valuable skills and experience. Many companies had learned from past experience how difficult it is to re-employ skilled workers once let go. But a consequence of this labour hoarding is that the amount of output produced per worker fell very sharply, in many cases partly because working hours were cut back. And although there has been some rebound since then, the level of labour productivity has still not recovered to its previous level. This greater retention of labour suggests that firms may be sitting on a substantial degree of spare capacity.
Much high quality work has already been done on this subject by local experts. However, they thought it might be helpful for the New York Fed, as an independent third party, to evaluate what might be done to promote competitiveness and productivity on the Island. I readily agreed that we would do so. I commissioned a team of economists from our Research group and other experts from our international and outreach teams, to analyze the challenges facing Puerto Rico. I asked them to put forward some recommendations on how to capitalize on the Island’s strengths and restore growth. The report released today on the competitiveness of Puerto Rico’s economy, is the product of their work and extensive consultation with local, national and international experts. I have  BIS central bankers’ speeches  1  read it closely and commend it to your attention. The report is intended as nonpartisan technical analysis and should be viewed in that vein. Even those who do not agree with every aspect of the analysis, I hope, will acknowledge that this is a serious, good-faith effort to examine, in detail, a number of important issues that deserve attention. Of course, many of these issues can only be considered as part of the political process. It is for the people of Puerto Rico to judge the appropriate trade-offs involved – not me, certainly, or my staff at the New York Fed. In a few moments Jamie McAndrews, executive vice president and director of research, will summarize the report and its recommendations.

More generally, there are several reasons to think that inflation will remain moderate. First, the economy continues to operate with significant slack. Second, measures of underlying inflation show little upward pressure, and the growth rate of nominal labor compensation is low and stable. Moreover, inflation expectations remain well-anchored. Taking into account all these factors along with our current stance of monetary policy, I anticipate that inflation will be slightly below our 2 percent long-run objective over the next few years. One of the challenges I face as a policymaker is how much to adjust my medium term economic forecast in response to near-term developments, particularly when there is elevated uncertainty. Although I have made some adjustments of late, they have been relatively modest to date. That is because there are important issues – such as the outlook in Europe and the degree to which we have lost underlying momentum at home – where more information is needed before making an informed judgment. Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further. I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further.
Transmissions occur through networks whose structure and architecture is constantly changing through financial innovation and regulatory arbitrage. Also, financial systems are "human" systems. Their behaviour is shaped by the way human beings react to shocks in their environment. Herd behaviour has long been known to be an essential feature of financial markets. More subtly, individual reactions, by themselves rational, can, by the virtue of their mutual interaction, produce strong amplification effects 3 . A broader definition of procyclicality would thus encompass three components, which cannot easily be distinguished in real life: (1) fluctuations around the trend (2) changes in the trend itself and (3) possible cumulative deviations from equilibrium value. This points to the policy challenges regulators face. They have to try and identify when pure cyclical fluctuations morph into something different: either a change in the trend itself or the start of a cumulative process. A good operational approach to procyclicality would look at all amplification mechanisms which provoke (or allow) the financial system to deviate durably or permanently from its predetermined path) so that the trend itself may be affected in the short or medium run. 1  Quote from FRBNY Economic Policy Review Issue on Systemic Risk (November 2007, page 26). 2  See Haldane (2009). 3  This has been luminously shown by Danielsson and Shin in their seminal article on "endogenous risk", based on the now famous parable of the Millennium Bridge. BIS Review 94/2009  1  What are the mechanisms at work?

2  BIS Review 94/2009  •  Finally, cyclicality in the real economy can be beneficial to long term growth as it is one mechanism through which "creative destruction" can take place in the productive system. Real and significant damages occur if and when financial imbalances are allowed to build for a long time with two consequences: first asset prices significantly deviate from their fundamental trend, which creates distortions in the allocation of resources; and second, those imbalances unwind suddenly and abruptly, triggering major disruptions in growth and the economic cycle. This is what is happening right now. And this closely resembles the definition of a bubble. This clearly points to one possible mandate for macro prudential supervision that, it were feasible, would be both pragmatic and legitimate: to avoid bubbles. Bubbles are not always triggered within the financial system. They may have roots in productivity shocks, for instance. But cyclical fluctuations cannot develop into a bubble – like process unless some amplification mechanisms are allowed to work fully in an overall permissive financial environment. What role did procyclicality play in the current crisis? During the first phase of the crisis, it was possible to take a "short term view" of procyclicality. It may have looked as if mark to market accounting, together with highly illiquid markets, generated downward spirals in asset prices and created "excessive" losses, with no relation to real underlying economic reality. Such liquidity spirals may have occurred at some critical moments 7 .
34  This is an average of the total customer swaps initial margin for the largest five clearing members as reported to the CFTC at end May 2018. Because these are US figures only, they represent a lower bound on total customer initial margin for OTC derivatives at a large clearing member. 35 See Brooke et al (2015), ‘Measuring the macroeconomic costs and benefits of higher UK capital requirements’, Bank of England Financial Stability Paper No.35, https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-paper/2015/measuring-themacroeconomic-costs-and-benefits-of.pdf?la=en&hash=9E3312E32D26EC1F02E25CB2F075356B484F0242. 16  All speeches are available online at www.bankofengland.co.uk/speeches  16  Chart 1: Major UK banks’ Tier 1 capital ratios 2008-17  (a)  Per cent  18 16  (b(c)(d)(e)  Basel III Tier 1  14 12 10 8 6 4 2 0 08  09  10  11  12  13  14  15  16  17  18  Source: PRA regulatory returns, published accounts and Bank calculations (a) This chart was in Box 2 of the June 2018 Financial Stability Report. (b) Weighted by risk-weighted assets. (c) From 2014, the ‘Basel III Tier 1 capital ratio’ is calculated as Tier 1 capital over risk-weighted assets. The CET1 element within Tier 1 and RWAs are according to the CRD IV definition as implemented in the United Kingdom. The additional Tier 1 element within Tier 1 excludes grandfathered instruments and other transitional adjustments. Prior to 2014, the chart shows Bank estimates; preference shares are used as a proxy for additional Tier 1 capital.

the Basel III finalisation package and the reforms contained in CRD V and CRR Il;    Making adjustments to the framework in response to new risks;    Making adjustments to the framework in response to unintended consequences. 13  For instance, a leverage ratio buffer for global systemically important banks (G-SIBs) that is based on the level of the risk-weighted GSIB buffer. There are some differences between the Basel leverage ratio regime and the UK regime but the amounts of Tier 1 capital major UK banks need under each are broadly similar – see Box 3 in the June 2018 Financial Stability Report, https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2018/june2018.pdf?la=en&hash=9D057C7302B80EF57D634020F50C6F46D782904C. 14 See https://www.bis.org/press/p171207.htm. 15 See the letter from the Financial Stability Board chair to G20 Finance Ministers and Central Bank Governors, 18 March 2018, http://www.fsb.org/wp-content/uploads/P180318.pdf. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  Remaining policy development  As mentioned, you should not expect a lot more reform. But there will be some further policy development to finish the job we started 10 years ago. For example, having implemented the Liquidity Coverage Ratio (LCR) back in 2015, we are polishing our Pillar 2 liquidity framework. This has not been adapted since the FSA introduced a new liquidity regime in 2010. Pillar 2 liquidity is intended to capture liquidity risks faced by banks that are not captured by the Pillar 1 LCR. Earlier this year we published a Statement of Policy on Pillar 2 liquidity.