samchain/econo-pairs-v1 huggingface dataset:
Andres Sutt: Emerging energy markets – key issues Introductory remarks by Mr Andres Sutt, Deputy Governor of Eesti Pank (Bank of Estonia), at the GIC/MKM/Eesti Bank Conference on emerging energy markets, Tallinn, 21 August 2008. *  *  *  Mister Minister, Excellencies, Ladies and Gentlemen, Dear Guests, It is a great honor to welcome you here in Tallinn. The issues of our conference on emerging energy markets are of great importance in today's world. We are very lucky to have an excellent lineup of highly distinctive speakers from both the public and the private sector, so our discussions will no doubt be interesting and useful. I also have to admit that that interest in the conference exceeded the organizers' most optimistic expectations. Energy issues and related policy choices have come forward forcefully and en masse for policy makers and public at large. Indeed, there is hardly any other area where choices that are made today will have a direct impact on the way of life of the generations to come. In this regard, I would like to briefly outline the key issues that will be discussed also today. First and foremost, human activity and energy consumption are, in all likelihood, having a direct impact on climate and, ultimately, on living conditions on the Planet Earth. While the direct effects of climate change on growth and prosperity vary, it is beyond any doubt that the challenges ahead are formidable.

The GIC is a Philadelphia-based nonprofit think tank with the mission to "encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards." This is indeed a noble goal in today's changing world full of new challenges and, unfortunately too often also conflict. Eesti Pank is honored to have been included in the GIC list of cooperating institutions for a number of years already. Our people have participated in GIC events both as speakers and members of the GIC delegation. We have first-hand experience in how dedicated the GIC is in fostering the cause of free markets, cooperation and liberty. BIS Review 104/2008  1  Ladies and gentlemen, thank you once again for coming here today. I am now most pleased to invite David to say a few words of welcome on the behalf of the GIC. 2  BIS Review 104/2008
Growth in trade between ASEAN and GCC have resumed postcrisis and is expected to receive a further boost with the ASEAN-GCC trade and investment framework agreement and FTA. I therefore urge all parties to work swiftly towards a mutually-beneficial conclusion. Reforming finance to sustain growth 8. The financial sector has encountered major turbulence and headwinds as a result of the financial crisis and has de-leveraged extensively in response to a more risk-sensitive environment. Significant changes in financial regulation are underway. Global regulators under the auspices of the Financial Stability Board, the Basel Committee on Banking Supervision, are working to put fractured financial markets back on a sounder footing. These changes include increasing the quality and quantity of risk-based capital, introducing new global liquidity requirements, and developing a fresh regulatory approach towards systemically important financial institutions. Such reforms should bring about greater stability to the global financial system. 9. These changes will not be dramatic for Singapore-based financial institutions because MAS’ regulation and supervision have been sound, prudent and effective. This has helped our financial system to remain resilient through the crisis. Last week, MAS communicated our long-standing approach in the latest monograph – “Tenets of Effective Regulation” where we reiterated that our approach to regulatory development is outcomefocused, risk appropriate and impact sensitive. MAS’ policies and actions need to be clear and consistent as well as responsive to industry and market changes and economic cycles.

We already did the same successfully under the SMP, which has now come to an end. Barely a year after the announcement of OMTs, the positive effects are obvious, and this development has certainly also been enabled by the reform efforts as a whole. First, banks and firms regained access to the capital market. Second, the spread between the yields on Spanish and German ten-year government bonds fell from more than 6 percentage points in July 2012 to just under 3 percentage points in May 2013. At the same time, the premium on Italian bond yields was halved, down from more than 5 percentage points. One further sign of the normalisation of developments – one that is important for German savers – is the fact that yields on German government bonds increased by around one-quarter of a percentage point over the same period. Third, TARGET balances – which are an important indicator of fragmentation within the euro area – have declined noticeably. They are down by € billion – around 25% – compared with their peak in 2012, so they are now back at the level observed at the end of 2011. In conclusion, we can see that the announcement of OMTs significantly contributed to the stabilisation of the situation. Firms, banks and households throughout the euro area benefited from this measure. Destructive extreme scenarios were ruled out and the damaged transmission mechanism was, to a certain extent, repaired.
In EU Member States, between 2002 and November 2005, 202 cases of the restructuring of companies related to offshoring were publicly announced, which resulted in the transfer of nearly one hundred thousand jobs. Over that period, offshoring stood behind nearly six per cent of all cases of publicly announced restructurings of companies in the EU. So far, the scale of the phenomenon has not been large. However, offshoring as a strategy of increasing competitiveness is becoming more and more common and includes not only the manufacturing of products but also — increasingly — services. Table 2. Offshoring in EU Member States Countries to which job transfer took place  Number of jobs liquidated in the EU between 2002 and 2003 due to transfer of jobs  Number of jobs liquidated in the EU between January and November 2005 due to transfer of jobs  China  3361  3077  India  9458  5470  Asian countries  3786  3271  Czech Republic  780  3890  Hungary  1110  772  Poland  120  2676  33151  31942  8  Source: European Restructuring Monitor , own calculations  Numerous analyses show that the process of offshoring is bound to grow and increasingly affect services 9 . For example, between 1980 and 2002 the trade in goods and services grew at 6.9%.

Today, a central bank in a small open market economy, which would wish to turn a blind eye on the developments in the external environment and focus solely on the developments in the national economy, is doomed to failure. Secondly, globalisation changes the wage and price setting mechanisms in the national economy, which have an impact on the domestic inflation. Globalisation (the growing openness of economies) — through the growing share of countries with low manufacturing costs in the global output ― increases the margin and wage pressures, in consequence lowering the inflation. At the same time, globalisation drives up commodity prices, and thus contributes to — at least temporarily — increased inflation. Thirdly, increased international migration of workforce changes the situation on local labour markets. Where the workforce outflows, the wage pressures increase; in the case of an inflow of workforce, the wage pressures go down. Fourthly, globalisation changes the functioning of financial markets and increases the uncertainty as to the impact of decisions made by the central bank on these markets and on macroeconomic variables. Fifthly, globalisation has an impact on the central bank’s perception of the economic environment and the monetary policy strategy it applies. A fast transfer of the economic know-how (flow of the economic knowledge and analytical methods) changes the methods of economic analysis by central bank economists, as well as the way decisions regarding the monetary policy are made. Sixthly, globalisation increases the risk of speculative bubbles on the assets market.
12  By contrast, they contain no significant information about future inflation beyond past inflation itself. In other words, in regressions of inflation on lags of itself and lagged expectations, the estimated coefficients on the latter are typically statistically insignificant. 13  David Miles made this point in a recent speech (Miles (2015)). To take a few of many studies, see also Hansen and Singleton (1982), Campbell and Mankiw (1989) and Canzoneri et al (2005). 14  Bachmann et al (2015). 8  BIS central bankers’ speeches  International experience: proper deflations are rare, especially in countries with floating currencies That doesn’t mean we can rest entirely easy. In particular, it would be wrong blithely to assume that positive nominal income growth will continue, come what may. Deflations have to start somewhere and there is a risk that falling prices will beget yet weaker or even negative wage growth – that today’s “good” deflation will metastasise into something a good deal worse. Bordo classifies “bad” disinflations as those that coincide with recessions, “ugly” episodes as steep and generalised falls in nominal quantities, all the uglier in the presence of large gross debts. However, my own view is that the chances of such an outcome are relatively low. I say that partly because base effects will naturally give a big positive impetus to annual inflation in early 2016.

Our global coordinators were amazed by our determination to create an innovative “Tap Facility” to allow the continued block creation of more Tracker units from the remaining portfolio of shares. Also we insisted on not giving any discount to the public at launch of the IPO and instead we offered an innovative back-end loaded incentive scheme in the form of a loyalty bonus. From the Government perspective, we had by April 2001 recouped more than the $ billion used by the Exchange Fund in the stock market operation. In total, we sold $ billion worth of shares into Tracker, received $ billion from dividends on our shareholdings and still retained $ billion in the Exchange Fund’s long term equity portfolio when the "tap" into Tracker was terminated. We could not have achieved this without the dedication and support of our highly professional project team members: Tracker Fund’s manager and custodian (our hosts tonight), the three global coordinators, the lawyers, the Marketing & PR Firms, colleagues at  BIS Review 142/2009  1  the SFC, HKEx & CCASS, and of course the Chairman (Mr TL Yang), all the directors and fellow staff of EFIL. If one were to mark the Tracker Fund as an exit strategy, I think it deserves a fine report card. We did dispose of the shares with minimal disruption to the market.
In normal times, if a country’s currency appreciates to the point where it begins to jeopardise price stability, that country’s central bank will react by lowering the reference interest rate. Lowering rates makes portfolio investments denominated in the relevant currency less attractive, thereby weakening it on the foreign exchange markets. However, when nominal interest rates reach their lower bound at or close to zero, central banks must take unconventional measures to prevent an undesired tightening of monetary conditions. A minimum exchange rate is one such measure. In summary, a minimum exchange rate is first and foremost a temporary instrument for use in situations where foreign exchange markets are extremely unsettled, a country’s currency is substantially overvalued against most other currencies, and nominal interest rates are at their lower bound, meaning that the exchange rate can no longer be influenced by cutting interest rates. The introduction of the minimum exchange rate against the euro in September 2011 In summer 2011, the decision to introduce the minimum exchange rate undoubtedly made sense. We had already lowered the target range for the reference interest rate to between 0.0% and 0.25%, with the aim of reducing the three-month Libor to zero. Moreover, uncertainty on the financial markets was exceptionally high and the debt crisis had raised questions about the future of the euro. The acrimonious budget dispute in Congress was taking its toll and the US dollar was showing signs of weakening.

As in the case of sub-prime markets, risk awareness was not adequate by suppliers and demanders of financial instruments and no preemptive action was taken despite some very risky characteristics. The responses by crisis countries to prevent the next crisis were no different from what Asian economies did more than ten years ago. The calls made by the G-20 Leaders include putting more focus on financial stability, strengthening financial sector regulations and supervision, enhancing surveillance mechanism at both individual and international levels, especially more effective surveillance role and liquidity support by the IFIs, particularly the IMF, just to mention a few important initiatives. Please allow me a few comments on a few issues that I’d like to highlight. What has been done and what more needs to be done Effective surveillance: being good global citizen One of the immediate responses to the crisis has been to strengthen effective surveillance capacity at national and international levels. We are of course on the right track in this effort to create a more robust and effective surveillance system with a view to ensuring timely policy actions. Tackling the problem at an early stage not only helps lessen the chance that micro shocks can adversely affect the macroeconomy, but also safeguards against spillovers from one country to the rest of the world. In today’s globalized world, this spirit of good global citizenship is essential.
An increase in capital flows in the form of foreign direct investments (and especially the establishment of branches of multinational corporations) and international trade liberalisation favour fragmentation of the production process, consisting in its division into parts located in different countries. Fragmentation of production is also enabled by enhanced transport and information transfer as well as their lower costs (i.e. the decrease in transaction costs). The fragmentation of production is grounded in international differences in the endowments of factors of production and - as a result - in prices of these factors. Multinational corporations divide their production among many different countries in order to minimise costs and make use of advantages of local markets, such as inexpensive labour force or a favourable location. Research and development, on the other hand, and the part of the production process that requires the use of the most advanced technologies and with the highest value added, are often located in the home country, also due to poor protection of the proprietary rights in developing countries. Such a conduct allows the company to benefit from comparative advantages related to different production locations. Moreover, it enables the use of international differences in exchange rates, interest rates, and government subsidies supporting selected types of economic activity, as well as of different structures of customs tariff rates and varying features of internal markets in particular countries, for the purpose of maximising profits. Research 22  17  Based on the data of UNCTAD.

In the economic literature of recent years most of the references to the problem of global imbalances concern the phenomena described above. Therefore, for the purposes of this speech, I shall assume that whenever global imbalances are mentioned, the term will mean a joint occurrence of the following factors:  2  Ricardo Husmann, Federico Sturzenegger “Global imbalances or bad accounting? The missing dark matter in the wealth of nations”, Harvard University working paper, January 2006. 3  W. Buiter “Dark Matter or Cold Fusion”, Goldman Sachs Global Economics Paper, January 2006. 4  K.Lansing “Spendthrift Nation”, Federal Reserve Bank San Francisco Economic Letter, November 2005. 5  According to World Economic Outlook published by the IMF in September 2005, the forecasted US current account deficit will amount to USD 759 billion in 2005 and will increase to USD 805 billion in 2006. Both values correspond to 6.1% of the forecasted GDP. Some forecasts by investments banks, however, indicate an increase in the forecasted current account deficit to 6.5% of the GDP in 2005 and to 7-8% of the GDP in 2006 and 2007. 6  An extensive discussion of the real property market can be found in A. Ahearne et al. „House Prices and Monetary Policy: A Cross Country Study”, Fed Board of Governors, International Finance Discussion Papers, September 2005.
These measures include, for example, the Federal Council’s decision in 2012 to increase the capital requirements for mortgage loans with a high LTV ratio, i.e. a high ratio of the mortgage loan to the value of the pledged property. Furthermore, banks’ selfregulation rules were revised and tightened in the years 2012, 2014 and 2019, which, in particular, imposed more stringent requirements regarding the amortisation of mortgage loans and own funds brought in by borrowers. An important factor was also the activation of the CCyB in 2013 and its subsequent increase to 2% in 2014. The CCyB was deactivated last year. This decision was made against the backdrop of the coronavirus crisis in order to  Page 10/12  broaden the scope for banks to lend to companies in these exceptional circumstances – in spite of the existing vulnerabilities on the mortgage and real estate markets. The measures implemented between 2012 and 2019 were important to strengthen the banks’ resilience and curb the increase in vulnerabilities. 12 They could not, however, fully prevent the rise in risks. The current situation will therefore continue to demand our full attention. I would like to highlight two reasons: First, current price developments in the residential property sector show that there is no reason to sound the all-clear. As outlined in our Financial Stability Report published in June, the coronavirus pandemic has not slowed down price momentum. On the contrary, price growth in the residential real estate market has in fact increased.

the costs resulting from interest payable, amortisation and maintenance – do not exceed one-third of the borrower’s gross income. In the case of residential investment property, these costs should not exceed the rental return. The term ‘residential investment property’ comprises apartment buildings as well as privately owned apartments and single-family houses that are rented out. Slide 3 shows the share of new mortgage loans at various imputed interest rates that do not meet the conditions of this standard metric, i.e. where the loan-to-income (LTI) ratio is too high. The data illustrate that affordability risks have risen in all segments since 2014 and are currently at historically high levels. The sharpest increase has occurred in the residential investment property segment. Between 20% and 30% of newly granted mortgage loans for residential investment property would be deemed unaffordable if the mortgage interest were to rise to 3%. Should the interest rate climb to 4%, this proportion would amount to around 40%. In the owner-occupied residential property sector, these shares would come to roughly 20% and 30% respectively. These figures on affordability risk do not mean that, in the event of an interest rate rise, mortgage loan defaults of this magnitude would actually occur. After all, the calculation used here considers only borrowers’ income and not, for example, their general financial situation. Moreover, the figures are based solely on newly granted loans, not outstanding loans. Overall, however, the figures do show that the debt level of mortgage borrowers compared to their income has increased sharply in recent years.
At the outset of the financial crisis, the private balance, which was negative, swung sharply into surplus, and this was largely accommodated by a decrease in the public balance–in other words, an increase in the government deficit. Recently, 3 this accounting identity looked roughly like this: 6.5% of GDP private balance + (–9.5% of GDP) public balance = –3% of GDP current account balance Realistically, the public balance 4 needs to be reduced to about –3 percent of GDP over the next five years or so for the ratio of federal debt held by the public-to-GDP to stabilize around 75 percent to 80 percent of GDP. One might reasonably do more, but this just strikes me as the minimum adjustment that would be prudent and sustainable. This requires a large change from where we are today. For the accounting identity to continue to hold, which it must, there needs to be sizable shifts in the private balance and/or the current account balance. This is not a policy choice – it is basic math – but policy choices can help ensure that the adjustments take place in a way that is supportive of economic activity. The private balance can be further divided into two pieces–the household balance and the business balance. Currently, for the United States, the household balance is about 2.5 percent of GDP and the business balance is about 4 percent of GDP.

This is because the Fed’s balance sheet is unusually large, as a result of asset purchases undertaken to promote the dual mandate, and because the spread between the cost of the Federal Reserve’s liabilities (mainly the 0.25 percent rate that the Fed pays on excess reserves) and the return on its assets is unusually high. As shown in (Figure 3), the Fed’s net remittances to the Treasury have climbed sharply in recent years, rising to more than $ billion per year over the past two years, after averaging about $ billion over the 2005–07 period. 1 Subtracting net remittances from the Fed from the Treasury’s net interest cost (as a share of GDP), one can see that the increase in our enlarged federal debt has not yet generated a significant rise in the net debt service burden (Figure 4). However, the low interest rates and enlarged balance sheet, which has generated these reduced borrowing costs, will not be sustained over time. Recall that the Federal Reserve’s policy decisions are motivated solely by monetary policy considerations–how best to achieve maximum sustainable employment and price stability. This means that the ancillary effects on the federal deficit from the Fed’s monetary policy actions are incidental and will prove temporary. Eventually, as economic and financial conditions improve, the pursuit of the dual mandate will lead to a different monetary policy stance, one that requires higher short-term interest rates. And, the Federal Reserve will also eventually shrink the size of its balance sheet.