samchain/econo-pairs-v1 huggingface dataset:
One reason for Iceland’s limited success in keeping inflation in check has been precisely that the impact of the Central Bank’s policy rate hikes has not been transmitted in full to the mortgage loan market. In particular this is because one of the players there, the HFF, enjoys Treasury guarantees on its borrowing, enabling it to meet its funding requirement by issuing bonds at very long maturities with lower yields than on shorter issues, so that it can avoid raising interest rates on its new lending, which under normal circumstances would have been warranted and called for by the Central Bank’s monetary stance. Since autumn 2005, market yields on indexed bonds have risen in the range ½ to 2 percentage points, depending upon the issues involved. At the same time, HFF interest rates have gone up by half a percentage point. So it cannot be said that Iceland faces the same conundrum as the US about why long-term interest rates have not risen in the wake of policy hikes. House prices began to increase significantly again last spring, in the teeth of general expectations, and have been the main driver of the CPI in recent months. It is not unlikely that the latest wave of price rises in the housing market is at least partly due to decisions by  2  BIS Review 111/2007  the government and HFF last winter to raise the loan-to-value ratio and mortgage ceilings and to lower interest rates on new lending.

Even though neither the changes nor amounts involved were large, there is little doubt that they had some effect and prompted a new marketing drive by the banks. In a climate of rapidly growing disposable income, house prices began to soar again. The Central Bank has emphasised the need to change the public sector mortgage credit system but has not stated an official view as to how this should be done. Nonetheless, immediate reforms are vital to give monetary policy more leverage over the mortgage loan market. Another important consideration is that whatever mortgage loan arrangements that are developed should provide a solid foundation for the domestic bond market. The Central Bank has been making these points for several years with little result. International agencies have agreed that a review of the role of the HFF is long overdue. Particular mention may be made of the IMF, most recently this summer. The Fund’s reports show that its analysts have striven to make an in-depth study of mortgage credit arrangements in Iceland. In its Article IV Consultation report published in June, the IMF claimed that a higher policy rate than otherwise had been needed as a result of the HFF’s activities. It should be added that one reason for the limited success in keeping the lid on inflation has been an enormous increase in disposable income in 2006 and 2007, driven by both wage rises and tax cuts. These factors and others have fuelled domestic demand and thereby inflationary pressures.
From this position, what the BNB is focused on today are two groups of tasks: the legal framework and the technical preparations. We have been working on these two topics methodically and consistently. As regards the Law on the BNB, we have two key dates. By the end of December we had to put forward amendments, ensuing from the convergence reports issued in recent years. I am talking about only a few amendments, but very complicated from a legal point of view, including the judicial protection of Governing Council members other than the Governor. We drafted these amendments, consulted the European Central Bank about them in accordance with the established practice, and submitted them, through the Government, to the National Assembly which approved them in December by a Law amending and supplementing the Law on the BNB. The second key date is 31 March 2023. By then we will have to draw up an entirely new draft of the Law on the BNB, which will incorporate the latest amendments and will govern all other issues relating to the Bank's operation within the euro area. Significant progress has been made on this draft. The first draft will be ready by the end of this month. We are going to devote the whole month of March to finalising the draft. The approach that we have adopted is to place the work on this draft on the broadest possible institutional basis, with the involvement of the management and of all key directorates and units of the BNB.

Dimitar Radev: Bulgaria on the road to the euro Speech by Mr Dimitar Radev, Governor of the Bulgarian National Bank, at the conference "Bulgaria on the road to the euro", Sofia, 24 February 2023. *** Dear Mr. President, Dear Mr. Prime Minister, Dear Mr. Dombrovskis, Dear Ministers, Dear members of the public, Dear guests, First of all, I would like to thank the Ministry of Finance and Minister Rositsa Velkova for organising this conference. A proper assessment of the current situation related to our path to the euro area will enable us to make the right decisions. For this reason, I will touch on three issues: 1. Assessment of the current situation; 2. Possible solutions; 3. The role of the Bulgarian National Bank (BNB). At this point of time we are rightly talking about inflation, which is one of the nominal criteria for accession, the only one we are currently not fulfilling. Process-wise, legislation is not an insurmountable obstacle. The genesis of the overall delay in the process, however, lies in the political framework and more specifically in the political crisis of the last two years. The ongoing problems with the legislative program and with the domestic factors for high inflation are largely a consequence of the political crisis. As a result of this crisis, the budget process in the country is seriously disrupted. For the past two years, we have not had a clearly defined law on the annual state budget or a realistic macroeconomic framework and medium-term fiscal program.
Puerto Rico’s economy has, unfortunately, been in a deep economic slump that has lasted for nearly a decade. Over the past few years, public sector job losses have continued to weigh against modest job gains in the Island’s private sector. And ongoing difficulties in the Island’s labor market continue, with labor force participation still alarmingly low, and unemployment stubbornly high at a rate well above the mainland’s. The good news is that we are finally beginning to see some firming in economic conditions on the Island. At the other end of the spectrum, New York City has been experiencing a robust recovery. While the Great Recession was clearly the worst post-war downturn in U.S. history, New York City was not as badly affected as the rest of the country. As of April, almost five years since the end of the recession, the nation has recovered nearly all of the jobs that were lost. BIS central bankers’ speeches  1  By contrast, New York City reached this milestone more than two years ago. And, as we’ve highlighted in previous press briefings, this rebound has occurred despite the lack of any significant recovery in employment on Wall Street. The recovery has generally progressed at a more moderate pace in the other parts of our region. Consistent with historical patterns, Upstate New York as a whole has been growing modestly, with Buffalo and Rochester doing a little bit better than their upstate peers.

William C Dudley: What kind of jobs have been created during the recovery? Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Regional Economic Press Briefing, New York City, 21 May 2014. *  *  *  Good morning and welcome once again to the Federal Reserve Bank of New York’s Regional Economic Press Briefing. I am pleased to have this opportunity to speak with you. This morning I want to focus on economic conditions in our region, giving particular attention to the kinds of jobs created in New York, Northern New Jersey and Puerto Rico during the recovery from the Great Recession. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. While the New York Fed has broad operating responsibilities on behalf of the FOMC and the Federal Reserve System, we are also deeply committed to our region. That commitment manifests itself in several ways. We produce monthly indices of economic activity that enable us to gauge the performance of the region’s economy. We conduct a regular poll of small businesses in our region, and just last week, we hosted a summit examining new sources of credit for small businesses. We developed block-by-block flood maps which were created after Superstorm Sandy to inform residents and businesses in Brooklyn of their vulnerability to future storms.
Of course, within the U.S., households and businesses can react to this wedge by choosing to locate elsewhere. And because the tax base of any jurisdiction depends on the level of local economic activity, this out-migration can lead to ever-higher tax rates or everdiminished services for those who still remain – typically those with fewer opportunities or resources to relocate. Today, there are several ways that states and localities can borrow to cover operating deficits; and the relatively slow economic growth since the financial crisis has increased pressure on their budgets, making such measures more appealing. One mechanism for doing this is to treat borrowed funds as revenues that can be used to balance the budget. Another form is asset sales. Here the jurisdiction receives cash today in exchange for a reduction in its future assets – sometimes physical like an office building, sometimes financial like tobacco settlement funds – and an increase in its future costs. Finally, and perhaps most importantly, is the practice of pushing the cost of current employment services into the future. Let me elaborate on this last method. Here I’m referring to the underfunding of public employee pensions and other post-retirement benefits for current employees. Both of these practices add to the indebtedness of the state and local governments with the employees playing the role of creditors. To be clear, while unfunded promises to cover retiree health insurance are very common, unfunded pension liabilities are probably much larger in aggregate magnitude.

Sustained buying of government paper by the central bank would only postpone problems and delay the necessary fiscal adjustments, ultimately resulting in a build-up of inflationary pressures. The ECB has never hesitated to reaffirm and remind all Member States, in very concrete terms, that compliance with the principles of budgetary discipline is absolutely fundamental. Naturally, since member states do not control their currency alone, they are vulnerable to liquidity episodes and multiple equilibria. Creditors’ assessments can change, e.g. via contagion effects, even when the fundamentals would not justify it. The high degree of financial integration within EMU means that, if left unchecked, contagion in the banking sector can spread rapidly via cross-border holdings of sovereign debt. For the sovereigns themselves, sudden shifts in market re-pricing of risk can lead to unexpected liquidity challenges. These dynamics underscore the importance of strengthening the mechanisms that prevent such risks – the SGP, surveillance of broader macroeconomic imbalances and stronger financial supervision. However, the liquidity dry-ups and the contagion risks also call for stronger backstop mechanisms, to provide significant, albeit temporary, liquidity assistance. The SMP aims to create a better functioning transmission mechanism of monetary policy to all parts of the monetary union and is therefore in full compliance with the prohibition of monetary financing. Also, we sterilise the impact of the SMP on our total liquidity provision.
The building industry and the financial sector expanded more than other segments of the economy. Many governments allowed their expenditure to rise in pace with higher tax revenues. Like the banks, many governments also moved some expenditure off the balance sheet, through public private partnership (PPP) agreements, for example. The bubble was allowed to expand. Households borrowed too much, house prices were too high, banks and the building industry were too big and government expenditure and debt grew too rapidly. The imbalances gradually surfaced. The problems arose initially in the US housing market and spread in earnest when money and capital markets abruptly dried up in September 2008. Once the crisis had become a reality, the authorities responded rapidly. To begin with, they provided support where the financial markets had failed, by providing guarantees, offering liquidity and funding and purchasing securities. Central bank key rates were aggressively cut. The crisis in the 1930s had shown that the cost of failing to implement such measures was very high. (See Chart: Sovereign debt to GDP in the G7.) The rescue packages moved private debt onto government and central bank balance sheets. In addition, tax revenues declined and social security expenditure increased. In the next phase, governments had to counteract falling corporate and household demand for goods and services by increasing public consumption and investment. Many countries entered the crisis with deficits and a relatively high level of debt.

When a loan matures, it may therefore be tempting for a government to renege on its promise to repay the  3  See Carl August Fleischer (2005): Folkerett (International law). 4  Eduardo Borensztein and Ugo Panizza (2009): “The Costs of Sovereign Default”, IMF Staff Papers, Vol. 56, No. 4. BIS Review 123/2010  3  debt. In economic policy this is known as a time-inconsistency problem. It can be profitable to make lofty promises, but turn your back on them once you have cashed in the benefits. Why do countries not renege on commitments in stable times? We observe that they do honour their commitments, but the economic literature does not provide us with a good explanation for why this is the case. Countries want to preserve a good reputation. Governments that default do so in adverse times, but only after sharp fiscal retrenchment to avoid that fate. 3. Countries default more frequently than we believe  It is no new phenomenon that some countries live beyond their means and fail to settle the bill. History shows that many countries have defaulted on sovereign debts. This has occurred during emerging phases. From 1500 to 1900, Spain defaulted on its sovereign debt 14 times. 5 France defaulted nine times in the same period, while the states that later became Germany defaulted six times. England also defaulted once, but as far back as in 1594. (See Chart: Sovereign debt default.)
In a very interconnected financial system, it can be almost self-fulfilling that when the market starts to think some of the banks are in trouble, in fact all of them are4. A third example in this section is the dynamic hedging strategy of a bank’s credit risk arising from its derivatives portfolio (Credit/Counterparty Valuation Adjustment: CVA hedging). This normally refers to the credit risk of a counterparty that is not directly offset by some form of collateral5. Suppose a corporate has issued a fixed rate bond because investor preference makes that the best value, but really it wants to have a floating rate liability. A bank will accommodate this by providing an interest rate swap. If interest rates go up, that swap may generate a net value owing to the bank. Receiving that value depends on the corporate not defaulting and so the bank will have a credit exposure to the corporate. But the corporate cannot be expected to post collateral – it will just regard its debt as having been converted to floating rate (and typically it won’t hold any collateral it could post anyway). A bank that is active in these interest rate swaps will end up with a large number of such mark-to-market exposures. Collectively, the resulting exposures constitute a credit portfolio which changes with the mark-to-market values of the underlying derivatives contracts. To manage the credit risks embedded in this so-called CVA portfolio, most banks will hedge dynamically in the CDS market.

•  And looking ahead, if foreign exchange transactions become centrally cleared, what role can and should CLS play to facilitate the safe settlement of those transactions? •  I’d note, CLS has plenty of strategic choices there, always a good sign. Second, CLS was created by private sector leadership and financial institutional commitment and industry collaboration is a key part of a successful future. •  CLS cannot do its work alone. What makes CLS successful are members who are proactive in identifying and working with CLS on opportunities to further strengthen the CLS ecosystem, particularly in a market that is rapidly changing. •  That will require not just member support but also member investment. Third, the birth of CLS and its development exemplifies the productivity of public sectorprivate sector collaboration. We have different roles, but a common interest in the performance and resiliency of the foreign exchange market. As we play our respective roles, we can make each other more insightful and better performing. We have done that here in foreign exchange settlement – and speaking personally, I would like to see private sector and public sector tackle more opportunities across the financial markets. Let me end by congratulating CLS and all who are part of it on these first 10 very successful years, thank the wider group here for the collaboration you have developed within the industry, and thank you also for the partnerships you have forged with central banks, most especially, with the Federal Reserve Bank of New York.
Svein Gjedrem: Current monetary policy issues in Norway  Speech by Mr Svein Gjedrem, Governor of Norges Bank, at the General Meeting of ACI Norway, held in Tromsø, on 19 August 2000. *  *  *  Introduction I would like to start by expressing my thanks for being given the opportunity to give this presentation of monetary policy in Norway. I will start my presentation with a brief review of the basis for monetary policy, and will go on to mention some of the considerations and reasoning behind Norges Bank’s recent setting of interest rates. Finally, I will turn to certain structural features of particular importance to developments in the capital account balance which can shed light on the relationship between the setting of interest rates in Norway and international interest rate developments. The basis for monetary policy The chart shows movements in the krone exchange rate between 1980 and the present. There have been three major crossroads since 1986. Chart 1 Krone exchange rate  •  Following the last devaluation in May 1986, the Norwegian authorities decided to introduce a fixed exchange rate system for the krone. The monetary policy authorities bound themselves to the mast. Under this system, the interest rate was to be set solely with the aim of maintaining exchange rate stability within narrow margins. At the same time, the krone was supported through extensive exchange-market interventions. The fixed exchange rate system led to a gradual slowing of price inflation.

The accumulation of capital in the Petroleum Fund serves as a channel for distributing oil revenues among generations and contributes to stable government finances in the long term. The larger the Petroleum Fund is, the less dependent we will be on petroleum revenues in the future. The Petroleum Fund shall also serve as a buffer against short-term fluctuations in oil revenues. As large portions of the revenues from oil activities accrue to the state, fluctuations in oil prices and oil revenues will primarily result in changes in allocations to the Petroleum Fund. Since all of the capital in the Petroleum Fund is invested abroad, such changes will in principle not influence the level of activity in the economy. This makes the Norwegian economy more robust to fluctuations in oil prices and thus less dependent on oil, even in the short run. 11  BIS Review 67/2000  Chart 11 Petroleum activity in 2000  We may say that oil revenues enter the Norwegian economy through an external and internal circular flow. The distinction between the external and internal circular flow is important for exchange rate stability. This means, among other things, that short-term changes in oil prices shall not influence the orientation of economic policy. If the distinction between the two circular flows were to break down, and the use of oil revenues were to fluctuate more in step with oil prices, we would have an unstable economy, and hence an unstable exchange rate.
Given the key role that human capital plays in our nation’s growth, this is an important issue. We at the New York Fed will continue to monitor school finances and other education indicators in our region closely as this will, over time, affect our regional economy. Conclusion In summary, during the second half of 2011, growth slowed in New York, falling well short of the national rate, although New Jersey kept pace. It’s also important to note that the national labor market is showing more consistent signs of improvement, and the regional labor market has continued to make progress. However, at the national level, the pace of recovery remains sluggish by historical standards and is likely to slow somewhat in early 2012. Thus, unemployment, both nationally and locally, is likely to remain unacceptably high for some time. Also, inflation is likely to be below our objective for several years. Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability. The Great Recession has affected education financing in both New York and New Jersey, but New Jersey was hit harder. Through its impact on the education of the next generation, this situation could have troubling implications for the ability of the next generation to succeed in the demanding jobs of the future. I will now ask Jason Bram to provide additional details on the regional economy. 4  For more detail, see Chakrabarti, Rajashri and Elizabeth Setren. 2011.

Third, despite record low mortgage interest rates, the depressed housing market remains a significant impediment.1 While house prices are no longer overvalued by historical standards, restrictions on access to credit and the large number of homes in the foreclosure pipeline means that home prices remain under downward pressure. The ongoing weakness in housing makes achieving a vigorous economic recovery more difficult for several reasons:   The strong rebound in housing construction and related activities, such as furniture sales, that typically power economic recoveries following deep recessions is absent.   The decline in home prices has eroded household wealth, which then inhibits consumer spending. Since home values peaked in 2006, homeowners have lost more than half their home equity and many expect further declines.   The weakness in home prices has reduced credit availability because many households and small businesses use their homes as their primary source of collateral for loans. 1  See Board of Governors of the Federal Reserve System, 2012 White Paper, “The U.S. Housing Market: Current Conditions and Policy Considerations” and “Housing and the Economic Recovery” by William Dudley. 2  BIS central bankers’ speeches    The big drop in house prices has made it more difficult for borrowers to refinance, undercutting some of monetary policy’s ability to support demand. In a recent speech I discussed some policy interventions that could help to stabilize the housing market. I will not discuss this further as our focus today is on education.