samchain/econo-pairs-v1 huggingface dataset:
13 However, the fact that it is difficult to estimate stable links between resource utilisation and inflation using econometric methods does not mean that these links do not exist. International experience indicates that minor variations in resource utilisation in normal times do not significantly affect inflation, but that a very low level of resource utilisation noticeably dampens inflation. In the current crisis, with a very low level of resource utilisation in the United States and the eurozone, underlying inflation has fallen from normal levels of around 2 per cent to around 1 per cent. As far as Sweden is concerned, it appears that, despite everything, there is a relatively strong link between underlying inflation and resource utilisation measured using the RU indicator with a time lag of one to two years. (Figure 12. The RU indicator and HICP inflation excluding energy 14 ). In Sweden, underlying inflation measured in terms of the CPIF (the CPI with a fixed mortgage rate) has stayed at, and even above, 2 per cent over the last two years despite the fall in resource utilisation. This is probably related to the substantial weakening of the krona in the most acute phase of the crisis. This contributed to rising import prices measured in Swedish kronor, which kept up inflation. The krona has now strengthened again and is more or less back to its pre-crisis level against the euro, and CPIF inflation has fallen back to below 2 per cent. (Figure 13. CPI and CPIF inflation).

SPEECH DATE:  9 November 2016  SPEAKER:  Martin Flodén  VENUE:  West Sweden Chamber of Commerce, Göteborg  SVER IG ES R IK SB AN K SE-103 37 Stockholm (Brunkebergst org 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn @ riks ban k.se www.riksb ank.s e  The Riksbank’s bond purchases affect government finances Prior to the financial crisis of 2008, the Riksbank could make profits without taking any actual risks. The assets on our balance sheet mainly consisted of foreign debt securities while the main liability items were outstanding banknotes and coins and our equity. The assets generated a reliable return, although their value fluctuated with foreign exchange rates, while the liabilities were interest-free. The Riksbank could therefore easily fund the bank’s operations as well as distribute a surplus to the government. But the current picture of the Riksbank’s financial position and risks is entirely different, something that, in part, can be illustrated by how the balance sheet has grown and changed in nature (see Chart 1). One important change is that the decline in the use of cash and the low interest rates have impaired our earning capacity, something which my colleague Kerstin af Jochnick has previously highlighted. 1 Another important change is that the Riksbank has purchased large volumes of Swedish government bonds since the beginning of 2015. These purchases have increased the risks on our balance sheet and made our profits and dividends more sensitive to interest rate changes.
Dear guests, The fact that the leaders of this Fund offered to present their financial services in the Republic of Macedonia, the Central Bank certainly encouraged and supported this initiative, shows that these important partners consider the Republic of Macedonia a friendly environment for launching various mutually beneficial business initiatives and projects. Yet, we do not forget though, that some of these institutions had no doubts whatsoever about the Republic of Macedonia even in the most difficult periods for us after gaining the independence, since when nobody else was coming, they were here. We certainly appreciate that. Regardless of all above, we still have many reasons that urge us to notice and convince others why is it good to invest in the Republic of Macedonia and to develop partnership with our economic agents and, of course, to inform on the activities that all of us in our country perform, directed towards increasing the attractiveness of the Republic of Macedonia as investment destination. Hence, we definitely need such financial offers. The economic growth could be accelerated by more investments, competitive offer of financial instruments and products, which are likely to eventually bring about lower costs for borrowing capital. The potential investors should be aware that the Macedonian financial sector is booming, but that the room for investments is yet to be opened. The gross national savings is low, not more than 12-17% of GDP, over the recent several years.

The country is therefore saving today in order to consume in the future. Moreover, it is more profitable for Japan to invest abroad since there are fewer domestic investment opportunities and growth prospects are muted. Japan therefore exports capital abroad and has a current account surplus. There are thus structural reasons why countries have a current account balance above or below zero for an extended period. Surpluses or deficits therefore do not necessarily indicate an overvalued or undervalued currency, or present a risk for the country and the global economy. 5 How can we distinguish between those current account surpluses or deficits that can be explained by fundamental factors, and those that cannot? The IMF has developed a model for conducting a thorough analysis of the impact of various economic drivers on individual countries’ current account balances. These drivers include demographics, the level of development of a country, and fiscal policy – in other words, factors that influence savings and investment. The results of the model are incorporated into an annual report, the External Sector Report, which I mentioned in my introduction. Nevertheless, it is not enough just to apply the model in a mechanistic way. The IMF therefore also takes country-specific circumstances and features of balance of payments data into account in its assessments. In Switzerland’s case, it concludes that the current account surplus is in line with macroeconomic conditions and is not the result of an undervalued currency or inappropriate monetary or fiscal policy.
In the past three decades, only a handful of countries have managed to achieve that status, and importantly, to sustain their position. In fact, the road to becoming a high-income economy is more difficult today, as countries are confronted with challenges and uncertainties like never before. According to the OECD1, the present landscape has “new rules, new environmental constraints, new technologies and more competition”. We will need to adapt to these changes, while managing other shocks that may come our way. What we don’t want is for the economy to take one step forward, only to be pulled two steps back. Along these lines, allow me to share four points on how Malaysia can more confidently transition towards a high-income economy. An economy centred on innovation My first point is on putting innovation at the centre of our economic development. Malaysia has come a long way. From being a commodities-based economy, we have diversified into high-end manufacturing and modern services. This helped us advance into a middle income economy in the early 70s. Yet, since then, we have struggled to achieve productivity- and innovation-driven growth needed to become a high-income economy. Even today, the deficit in the innovation capability of our economy remains. For instance: Malaysia does not spend enough on R&D. In fact we spend less than half of other frontier economies like Korea, Taiwan and Singapore. Our R&D efforts have focused on generating scientific knowledge, but less on applying that knowledge. This has resulted in low commercialisation of R&D.

Of course the City is in competition with other financial centres elsewhere in Europe. But as I have often pointed out before, at the macro-economic level such competition is a positive-, not a zero-sum game from which we collectively, borrowers and lenders and market intermediaries, all stand to gain. I have every confidence in the ability of the City to thrive in this competitive environment - but it will thrive not at the expense of the rest of Europe but alongside other European financial centres. And in that context suggestions that we should be somehow artificially disadvantaged are irrational. The third challenge confronting the City - and a much more fundamental one - is the accelerating advance of information and communications technology which is currently sweeping across the whole of the global economy. In the financial services sector in particular it is the major driver of change and innovation. It makes possible the introduction of a whole raft of essentially new financial services and products, and it is radically changing the way in which they and existing services and products are delivered, whether in wholesale or retail financial markets, at a fraction of the existing cost. In wholesale markets it will affect the whole spectrum of activity - from trading through payments and settlements, across the whole range of financial instruments, across national boundaries - not simply within Europe although that is an immediate focus of attention - and it has the potential to alter fundamentally the relationships between end-users of the markets, intermediaries and exchanges.
But the role of capital is primarily to reduce the risk of a bank failing at all. When the bank suffers losses it should have a capital buffer to meet them and thereby be able to continue its operations. What this means for the banks in the end, as for the rest of us, is that they must try to earn more money than they spend and have sufficient reserves to cope with the periods when they don’t. The banks manage this by constantly assessing the risk that a borrower will experience difficulties in meeting interest payments or paying off the loan. If this risk increases, the bank leaves a good margin for it by adjusting its lending or allocating reserves for potential losses. But as borrowers are affected by so many factors that are difficult to judge – for instance, economic recessions have very different impacts on different sectors and geographical areas – it is easy for the bank’s losses to become larger than expected. The minimum capital required by the regulations should act as a buffer against such unexpected losses. It is necessary for everyone to be convinced the bank will survive in order for it to survive. If the bank is perceived as unsteady, the supply of money will be cut off. A lack of sufficient capital buffers can easily shake confidence in the bank. And this was exactly what happened when the crisis loomed large. People were uncertain how badly off the banks were.

This is money we could have used for consumption and welfare. And let us remember that this is just one of the effects. Add to this the reduction in wealth in the form of falling values of companies, financial instruments and other assets. Contagion effects in a globalised financial market The origins of the crisis lay in US subprime mortgages. Although Swedish banks had very little exposure to this type of asset, the crisis nevertheless affected them. Like the Swedish economy as a whole, the Swedish financial system is very dependent on other countries. For example, only half of the banks’ funding is deposits from private individuals, companies and institutions in Sweden. The rest is borrowed on the market, and a large part of this on international markets. Moreover, most of the funding is relatively short term. This is not unique to Sweden. The advantage is that it reduces the banks’ funding costs, which in turn  2  BIS Review 159/2010  makes it cheaper for households and companies to borrow money. But there are also disadvantages. As the banks have made themselves more dependent on the outside world, they have of course become more vulnerable to problems arising abroad. When the international money markets slammed on the brakes in autumn 2008 the Swedish banks’ funding was immediately affected. Not least because they had borrowed money in the short term. So unlike the crisis of the 1990s the crisis we have just experienced is largely an imported one.
Transition risks – which stem from the adjustment to a low-carbon economy – are longer term and therefore less visible. To better assess these risks, we need to both measure exposures and perform forward-looking stress tests. We also need to develop the considerable opportunities associated with the financing of the transition to a low-carbon economy [Slide 5] – this involves finding close to USD 90 trillion by 2030 – while preventing the risk of greenwashing. A major work programme for the Central Banks and Supervisors Network for Greening the Financial System (NGFS), which was launched by the Banque de France in December 2017 and now counts close to 40 members and entities 3/4  BIS central bankers' speeches  about to join. Conclusion To conclude and summarise my speech, the diversification of sources of financing holds the promise of improving the financial system’s ability to support innovation and sustainable economic growth, as long as this diversification is encouraged and its risks are well managed. Given this promise, the slow pace of change, the modest progress towards a capital markets union, the complexity of the challenges of digitalisation and green finance should encourage us to continue to act with determination, patience and perseverance. On the way, we can seek support and comfort in this quote by the former President of the Czech Republic, Vaclav Havel: “Hope is not the conviction that something will turn out well, but the certainty that something makes sense, regardless of how it turns out". Thank you for your attention.

1 Source: Dealogic 2 Source: Société Générale 3 Source: Baromètre du crowdfunding en France 2018, Financement Participatif France and KPMG 4 Source: Autorité des marchés financiers 5 Current account surplus over the 12-month period ending in January 2019 (source: ECB)  4/4  BIS central bankers' speeches
The macro and micro prudential policies of EMEs in the previous decades have succeeded in lowering levels of leverage, not only in financial sectors, but also in nonfinancial and household sectors. This, in turn, lowered levels of maturity and currency mismatches. This gave rise to high capital adequacy ratios and low non-performing loan rations in banking sectors of many EMEs. Moreover, in relative terms fiscal positions of EMEs have further strengthened while those of AEs have worsened in the aftermath of the GFC due to sizeable fiscal stimulus policies. Keeping this systemically important sector free from solvency risk has helped EMEs gain business confidence (Figure 9). Lower deficit and debt levels imply ample policy spaces for EMEs in cases of economic downturn. Creditworthiness together with policy spaces on the EM fiscal fronts have contained upward pressures on interest rates and have kept the effectiveness of other policies intact. It is fair to say that they now look strong enough to render the adverse effects of external financial shocks manageable.8 Policy actions in EMEs However, the current unconventional monetary policies of AEs in the form of low or even negative nominal policy rates as well as quantitative easing and unintended consequences of the financial sector reforms across the world pose new challenges to EMEs. Until recently, because of better growth prospects and lower levels of leveraging, EMEs attracted capital inflows with their nonfinancial corporates having lion shares.

As a result, stock and flow balances, policy frameworks, and levels of economic confidence and market development in EMEs have strengthened substantially and radically. Stock ad flow balances Since EMEs mostly suffered from sovereign debt crises, fiscal discipline has been the cornerstone of the first generation of structural reforms. Prudent fiscal policies have played a key role in maintaining low budget deficits and hence lowered debt levels to the extent that budgets delivered primary surpluses (Figure 4). Lower interest rates implied by diminished financing requirements of the government sector then further reinforced fiscal positions. As a consequence, the share of government bonds in emerging debt markets has declined and created room for the private sector debt market to grow. Private debt levels in emerging markets have also stayed at moderate levels on average (Figure 4). Declined public debt also implied lower bases for external debt. In addition to this development, EM governments have consciously borrowed less in foreign currencies in the wake of their earlier financial crises. Combined effects have, on average, reduced government owned external debt to GDP ratio from 28 percent at the beginning of the 2000s to 18 percent in 2014. This decline in Eurodollar loans manifests deepened domestic debt markets and hence have reduced the so called “original sin” problem of emerging markets to the extent that foreign investors willing to lend in domestic currency as opposed to hard currencies. It is argued that one of the factors that created economic instability in EMEs is the “original sin” problem.
4 See Board of Governors of the Federal Reserve System, The Federal Reserve System: Purposes and  Functions (2018). 5 See remarks by Randal K. Quarles, Early Observations on Improving the Effectiveness of Post-Crisis  Regulation, January 19, 2018. See also remarks by William C. Dudley, Lessons from the Financial Crisis, November 6, 2017. 6 7/8  BIS central bankers' speeches  6 For further discussion, see Ashcraft and Schuermann, Understanding the Securitization of Subprime Mortgage  Credit, Staff Report No. 318, March 2008. 7 See remarks by Lorie Logan, The Role of the New York Fed as Administrator and Producer of Reference Rates ,  January 9, 2018. See also the Alternative Reference Rates Committee. 8 See Financial Stability Board, Final Report on Foreign Exchange Benchmarks, and FX Global Code. 9 For further discussion of supervisory activities, see Eisenbach, Haughwout, Hirtle, Kovner, Lucca, and  Plosser, Supervising Large, Complex Financial Institutions: What Do Supervisors Do? February 2017. For a discussion of the complementarity of supervision and regulation, see Eisenbach, Lucca, and Townsend, The Economics of Bank Supervision, Staff Report No 769, January 2017. 10 For a discussion in the context of misconduct risk, see remarks by Kevin J. Stiroh, Misconduct Risk, Culture and  Supervision, December 7, 2017. See also Chaly, Hennessy, Menand, Stiroh, and Tracy, Misconduct Risk, Culture and Supervision, December 2017. 11 William C. Dudley, Opening Remarks at Reforming Culture and Behavior in the Financial Services Industry:  Expanding the Dialogue, October 20, 2016.

At present, there are few indications of any unusually pronounced imbalances between the real exchange rates of the currencies of the large economic blocs. Looking at their development, it becomes apparent that they are all close to their long-term averages (cf. Graph 1). This suggests that the US current account deficit is not primarily a product of exchange rate distortions. It is mainly due to a comparatively high growth momentum and a low savings rate in the US. Yields in the capital markets continued to fall. While this decline was weakest in the US, yields in continental Europe hit historical lows. In Switzerland, for instance, the yields on ten-year Swiss Confederation bonds reached an all-time low of less than 2%. The extraordinarily low capital market yields reflect the market’s low inflation expectations. During recent months, certain concerns about economic growth have triggered a further decline in yields. Both strong demand for long-term debt securities in industrialised countries (driven by demographic factors) and high savings rates in the emerging markets – particularly in China – have probably also contributed to the generally low level of interest rates. While 2004 was characterised by a steady and uniform decline in credit risk premiums in the different debtor categories, the past six months saw a less even trend in the credit risk premiums of individual bonds. In the corporate bonds area, the market’s attention focused on the two major US automakers.
Of course, the big question now is what roles could policymakers play to support this transition. I see SMEs capacity building as one key area where the government needs to be actively involved. This includes proactive consultation and coaching, providing incentives for productivity-enhancing investments, prohibiting abuse of market dominance power by large firms, promoting digital adoption, as well as eliminating outdated laws and regulations hindering SME’s competitiveness. Although enhancing SME competitiveness might not be a direct mandate of a central bank, the Bank of Thailand has stepped up our policy focus on SMEs and worked with the banks on a number of initiatives. New digital payment platforms have been developed to lower costs of payment services, enhance payment efficiency, and provide a foundation for information-based lending and supply chain financing. A new database on system-wide SME loans by contract was set up to improve understanding of SME financing behavior and analysis of SME credit risks. We have also expanded the range of foreign exchange hedging products for SMEs and, recently, taken steps to encourage preemptive rescheduling and restructuring of SME loans to help facilitate their transition during this challenging period. 2  Dealing with financial spillovers The second issue for emerging nations in this new global environment is the size and volatility of financial spillovers that result from unconventional monetary policy after the GFC. Capital flows, especially portfolio flows, now account for a much larger portion of crossborder flows than current account flows, and have a much larger effect on the exchange rates for EMs.

I think it is more crucial than ever for small nations—emerging nations and advanced economies alike—to work closer together and make sure that our voices from the periphery are heard and that we make progress on macroeconomic policy frameworks fit for the new global environment. Thank you very much for your kind attention. 6