samchain/econo-pairs-v1 huggingface dataset:
The first is the greater income and consumption volatility that have been observed in emerging markets, both in terms of the level and in terms of growth relative to developed economies. And the second is the fact that economic agents in  1  The views expressed in this paper are those of the authors and do not necessarily represent those of the Bank of Thailand or Bank of Thailand policy. I would like to thank Piti Disyatat, Ashvin Ahuja, Sarawan Angklomkliew, Jaturong Jantarangs, Nawaporn Maharagkaga, Don Nakornthab, Kobsak Pootrakool, Mathinee Subhaswadikul and Supradit Tangprasert of the Bank of Thailand for their substantial contribution to the drafting the original paper. BIS Review 98/2008  1  emerging markets face greater limitations in the ability to smooth consumption in response to shocks. The empirical evidence from two recent studies are summarized in Table 1. As documented by Aguiar and Gopinath in 2007, consumption is around 40 percent more volatile than income at business cycle frequencies for emerging markets, while the ratio is less than one for developed economies. The same is true when comparing relative volatility in growth rates of consumption and income. A study by Kose, Prasad, and Terrones in 2005 also shows greater income and consumption volatility in emerging markets relative to developed economies. Such heightened volatility in macroeconomic outcomes undoubtedly has adverse implications for welfare.

The depth of Spain’s problems, along with the lack of a suitable European response, has led moreover to the crisis becoming systemic, acutely affecting countries with problems of a different nature and magnitude. True, there has been some progress in European governance in recent years, with the strengthening of procedures already in place, the design of new macroeconomic surveillance procedures and the implementation of new Treaties. These treaties include that establishing the European Stability Mechanism, and the Treaty on Stability, Coordination and Governance in the euro area, which makes provision for the so-called Fiscal Compact. But this progress has not been sufficient to stabilise the situation, partly due to the lack of broad consensus that is apparent in the stance and statements of different European authorities. In these circumstances, action by the European Central Bank has been key to easing the moments of greatest tension and extending the time available to adopt the necessary measures in other economic policy areas. Evidently, the ECB cannot resolve the serious underlying problems of this crisis, be they national or related to the European architecture. It can only address some of the manifestations of these problems, in particular those reflected in financial markets, with a view to smoothing the way so that governments can take the corresponding measures. Spain is a clear example of an economy in which Eurosystem action has overcome critical situations and has provided the time needed to set in train ambitious reforms in various areas.
This assessment must also take account of the substantial uncertainty surrounding the calculation of the output gap, and of Norges Bank’s mandate which specifies that inflation shall be 2.5 per cent over time. The inflation gap and the output gap shall normally not be positive or negative at the same time further ahead. If, for example, both gaps are positive, a higher interest rate path would be preferable as this would bring inflation closer to the target and contribute to stabilising output. Depending on the initial situation for inflation and production, it may be difficult to meet these criteria simultaneously. How easy it is to meet these criteria will depend on the disturbances to which the economy has been exposed. There are also other important considerations when assessing the interest rate path. We must assess whether the interest rate path, at least in the next few months, results in acceptable developments also under alternative, but realistic assumptions concerning economic developments and the functioning of the economy. In other words, is the strategy robust? We must also evaluate the consequences for financial stability. Last, but not least, a successful monetary policy requires a reasonably good understanding of the state of the economy and its functioning. I will now discuss this in more detail. Analyses and models at Norges Bank The Executive Board’s assessments of various interest rate paths are based on projections of economic developments, supplemented by other information and discretion.

The prolonged period of low interest rates presents particular challenges for the banking sector. •  First, lower interest rates, a flattening of the yield curve, and lower corporate investment mean net interest income and profits are being squeezed. BIS central bankers’ speeches  1  •  Second, low interest rates and investment returns are driving a search for yield among households, asset managers and institutional investors, which could lead to excessive risk-taking and growing financial vulnerabilities. 6. Periodic bouts of heightened volatility in financial markets over the past few years, triggered by events such as the taper tantrum, normalisation of interest rates in the US, transition to a more market-based exchange rate system for the Chinese currency, and just days ago, the UK’s decision to leave the EU, underscore the fragility of global financial markets. At the same time, tightening financial conditions in the emerging market economies (EMEs) as a result of a stronger US dollar have exposed financial vulnerabilities due to excessive corporate and household borrowings in some EMEs. 7. This means that banks have to continue to update their risk management capabilities to cope with a more uncertain environment. MAS as the financial regulator has also been strengthening our risk surveillance and updating aspects of our regulatory framework. This evening I would like to touch on the following: •  stress test exercises to ensure resilience to emerging risks;  •  efforts to enhance cyber security; and  •  guidelines to strengthen risk management of outsourcing arrangements.
This has influenced the integration pattern on the various segments of the financial market. European Union has modified the way in which financial institutions organise their daily business in the euro area: It is true that financial integration in Europe started before January 1999, as banks and non-financial companies included, in their strategies, the setting up of the Single European Market, which occurred ten years ago. The expansion of their operations abroad has been notably the driving force. To illustrate that point, we can look at the stock of foreign assets held by companies. In the case of France, this stock has more than tripled between 1992 and 2000, from EUR bios 131 to EUR bios 465. As a result, non-financial companies gradually introduced more competition into the banking system, as they funded their expansion through non-domestic bond or commercial paper issues, or by centralizing their financing. As an example 40% of the external financial resources borrowed by French medium and large companies are being redistributed to their own subsidiaries, and 10 to 15% 1 consists of commercial paper and bond issuance (figure as at end 2001) . 1  Source : Banque de France – Central balance sheet data -  BIS Review 71/2002  1  1.2  These changes, and on top of them the introduction of the euro, have influenced the integration pattern on the money market, on the bond markets, on the derivatives markets and on the equity markets. Integration is certainly –and naturally– most developed on the money market.

The benefits of price stability, which are also important factors to the attainment of MDGs are: effective planning; lower investment costs; increased public and foreign investor confidence in the economy; improved external sector competitiveness; and accelerated economic growth needed to reduce poverty levels. (a)  Effective planning  When prices are stable, corporate institutions, governments, civil society and individuals are able to draw up their expenditure plans well into the future. In particular, companies will be  BIS Review 123/2007  1  able to reliably plan with some degree of certainty for their operations and long-term investment in fixed assets that will expand their production capacity and output and lead to increased employment as well as enhancement of incomes. Similarly, a government is able to make more accurate projections of revenues expected to be collected in future and thus more effectively plan its current and capital expenditures that are likely to benefit the poor. (b)  Lower cost of investment  Interest rates being the cost of funds will inhibit borrowing for investment if they are too high. Interest rates, therefore, are an important factor in attaining price stability. Low and stable interest rates, which are possible with the achievement of low inflation, create conducive credit conditions that improve accessibility and availability of credit to the productive sectors. Improved access to credit by the private sector will result in increased investment and production which ultimately leads to higher economic growth and improvement in standard of living.
Since asset prices are typically far more volatile than real economic variables and general price levels, substantial changes in interest rates could be required to check financial imbalances, and this could have serious side-effects on the goal of maintaining price stability. BIS Review 121/2010  3  As you can see, there are many questions that have not yet been clarified. The problems I have mentioned make it clear that central banks would rapidly reach their limits if they were simply to add a further goal alongside price stability without new instruments to deal with it. The more objectives an instrument is expected to achieve, the greater the risk of wrong decisions and conflicting objectives. However, as I have already said, these problems do not mean that financial stability should be ignored completely in monetary policy decisions. Asset prices and other variables such as credit growth must be included as indicators when assessing the situation and the outlook for inflation. They are already included in the practical implementation of today’s monetary policy strategy. Yet care must be taken when interpreting such “instability variables” because they provide only limited information about future economic trends. To sum up, monetary policy can make an important contribution to financial stability. However, the set of monetary policy instruments is unsuitable for excluding all imbalances in all circumstances. Accordingly, instruments that have a direct effect are needed to counter the emergence of (global) financial instabilities.

Jean-Pierre Roth: Role of the central banks with respect to the financial market crisis Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Forum Suisse de Politique internationale, Geneva, 23 May 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  The central banks have been working extremely hard to respond appropriately to the turmoil that has beset the financial markets in recent months. Aimed at enhancing the resilience of the markets and safeguarding the stability of the financial system, the measures they have taken have been drastic and innovative at times. As this episode has also shown, a policy of preserving financial stability is not always easy to reconcile with monetary policy. The central banks must therefore tread carefully and avoid compromising their price stability objectives when intervening to defend financial stability. While money market conditions deteriorated over the past nine months, the Swiss National Bank put off interest rate hikes so as not to provoke a tightening of credit conditions in Switzerland. Effective action by banking supervisory authorities is key to ensuring long-term financial stability. However, the central banks also have a role to play in reinforcing the markets during times of need.
Our respective roles and responsibilities, including in a crisis, are set out in a formal Memorandum of Understanding published in the Autumn of 1997 between the Treasury, Bank of England, and FSA. The MOU also established a Tripartite Standing Committee that meets monthly to exchange information and discuss current threats to financial stability. I like to think that, with the departure of responsibility for day-to-day supervision of individual institutions, the Bank has addressed the issue of systemic stability with a new-found clarity of purpose. That said, we know that there is a huge amount of work still to be done on understanding systemic risk. I see a clear contrast here with the monetary policy field. In monetary policy, we are closer to a general consensus about the policy framework and the objectives of monetary policy, even if at any moment of time uncertainty still surrounds our forecast for inflation and the appropriate policy response. Certainly the UK target for monetary stability (the 2.5% symmetrical inflation target) is clear and transparent. In the field of systemic stability and financial crisis, however, our understanding is at a very preliminary stage. We face an array of fundamental questions: how to define systemic stability; how to measure and predict it; what policy weapons we should employ to achieve it; what the costs are if we fail; and how best to resolve instability if it occurs. We have only partial answers to these questions.

Market discipline through enhanced disclosure does of course form one of the pillars of the new Basel Accord but there are also broader international initiatives underway on this front. What I would like to do is spend a little time here discussing how increased public disclosure, and certain other aspects of the new Basel Accord, could affect financial efficiency and financial stability. Is it possible to achieve advances in both? Enhanced disclosure Clearly the architects of these initiatives believe so. Increased disclosure should help the market distinguish between well-managed and adequately capitalised banks and their poorly managed and unsound counterparts. The latter will as a result come under pressure to improve their performance. This should produce clear financial stability benefits, and also financial efficiency ones, since the weaker banks are likely to be those who in some sense misdirect, or rather mis-price, credit to borrowers. Greater disclosure should also help to address the propensity in financial markets for self-fulfilling crisis. By this I mean, the tendency as conditions deteriorate and confidence is dispelled for market participants to act in a way that precipitates crisis for firms that would otherwise be solvent. The greater the uncertainty the more participants will be liable to trigger a crisis in this way. Increased disclosure has a part to play in reducing this risk. But it also explains the importance that we attach to liquidity management and the need to ensure that, given the current focus on the new Basel Accord, the regulation of liquidity is not overlooked.
In particular, by purchasing longer-term securities, the Federal Reserve removes duration risk from the market, which should help to reduce the term premium that investors demand for holding longer-term securities. That effect should in turn boost other asset prices, as those investors displaced by the Fed’s purchases would likely seek to hold alternative types of securities. Some research studies have estimated that the effects of the earlier expansion of our securities holdings by just over $ trillion lowered longer-term Treasury yields by about 50 basis points through this portfolio balance channel. 3 These effects on Treasury yields appear to have been transmitted into lower rates on private credit instruments and higher asset prices more broadly. 1  Reflecting the long-standing practice of the Desk, principal payments on our holdings of Treasury securities were already being fully reinvested at Treasury auctions. 2  The Fed’s asset purchases initially had an additional and important effect on mortgage rates by improving the functioning of the MBS market. As I have noted in earlier speeches, the use of the central bank’s balance sheet can be particularly effective when focused on markets in which liquidity and market functioning have become impaired. The focus here is whether, in addition to those effects, the size and composition of the Fed’s balance sheet have a lasting impact on financial conditions in well-functioning and relatively liquid markets.

The market response to the reinvestment decision at the August FOMC meeting seemed largely in line with the estimated effects from the earlier round of asset purchases, once we account for the size of the surprise and the anticipatory pricing that occurred ahead of its announcement. And the increased expectations for balance sheet expansion in response to the September FOMC statement also generated a sizable market response. To be sure, I think it is fair to say that this is an imperfect policy tool. Even under the estimates noted earlier, the Federal Reserve had to increase its securities holdings considerably to induce the estimated 50 basis point response of longer-term rates. In addition, there is a large degree of uncertainty surrounding the estimates of these effects, given our limited experience with this instrument. Lastly, it is reasonable to assume that the effects of balance sheet expansion would diminish at some point, especially if yields were to  6  The duration of our Treasury purchases are modestly higher than the duration of the MBS that are being produced in the market. 7  See “The Outlook, Policy Choices and Our Mandate,” October 1, 2010. 4  BIS Review 128/2010  move to extremely low levels. Nevertheless, the tool appears to be working, and it is not clear that we have yet reached a point of diminishing effects. Some observers have argued that balance sheet changes, even if they influence longer-term interest rates, will not affect the economy because the transmission mechanism is broken.
The whole point of allowing monetary policy decisions to be made by a group of people and not one  BIS Review 134/2010  5  individual can be summarised in the expression “many heads are better than one”. And this would not apply if we all thought in the same way, if we were all clones. Then one single decision-maker would be sufficient. It may be worth pointing out that the fact that we have been publishing our own forecast for the repo rate for a few years now has probably meant that it becomes more noticeable when we disagree. The repo rate path makes it necessary to have a deeper and more long-term discussion than if we were just making a decision on whether or not the current repo rate should be changed. My impression is that the repo rate path has increased the quality of the monetary policy discussion both internally and outside of the Riksbank. But it also means that, to put it simply, we have more to disagree on. The fact that members of a monetary policy committee have different backgrounds, experiences and knowledge means that they approach an interest rate decision from slightly different directions, and they analyse and argue in slightly different ways. These differences do make demands that one must find some form of “common denominator” in the monetary policy discussion so that members do not talk at cross-purposes.

CPI inflation was forecast to increase quickly next year, mainly as a result of mortgage rates rising due to the repo rate increases. CPI inflation was expected to temporarily overshoot the inflation target in 2012 and 2013, but to be around the 2 per cent target in the longer run when the repo rate has reached more normal levels. The majority of the Executive Board members made the assessment that it was appropriate to continue the process of normalizing monetary policy that had begun in the summer. The repo rate was raised to 0.75 per cent and the repo rate path was held unchanged from June. This is roughly the picture we painted in the Monetary Policy Update published in September. The statistics received recently have continued to point towards a rapid recovery in Sweden. The GDP outcome for the second quarter has been revised up relatively substantially compared with the preliminary outcome, and expressed as an annual percentage change amounts to 4.6 per cent. The National Institute of Economic Research’s economic tendency survey points to the mood among households and companies being much stronger than normal, and the indicator is now only marginally lower than the peak listing from 2000. New international statistics present a mixed picture. How the new information will be taken into account is something we will return to at our next monetary policy meeting.
It is just this stability in the fundamental conditions for economic activities that was no doubt important for the process that resulted in the industrial revolution, which in itself was full of commercial risks and uncertainties. Improvement in opportunities for change A similar gloss can be applied to the realignment of economic policy from the second half of the 1980s. There have been a number of reforms aimed at creating stability and opportunities. The credit and currency markets have been deregulated, components of the social security system have been reformed, a tax reform has been implemented, targets have been established for government finances, price stability is enshrined in law and the Riksbank has been given an independent status. All this represents good possibilities of the Swedish economy facing a stable future as we step over the threshold to a new millennium. It is important that wage formation also functions properly. It remains to be seen whether the Swedish economy has changed in this area. Otherwise, there is a risk that firms will be under pressure from two fronts. Profitability will be depressed both by increased competition and by rising wage costs. Investment will be held back and the transformation will proceed too slowly or not at all. There will then be no quick renewal of capital stocks. Companies will not draw the benefit of the new information technology at a sufficiently rapid rate and will then lag behind.

Employment in different sectors during the 20th century 80  80  70  70  60  60  50  50  40  40  30  30  20  20  10  10  0  0 1900  1910  1920  Agriculture  BIS Review 137/1999  1930  1940  1950  1960  1970  Public and private sector  4  1980  1990  2000  Industry  The employment trends in different sectors, as a proportion of total employment, shows the Swedish economy’s transformation during the 20th century. Three different stages are especially clear. Firstly, fewer and fewer people earn a living from agriculture over the years. Having provided employment for around 60% of the labour force at the beginning of the century, agriculture now engages only a couple of per cent. This change reflects a dramatic increase in agricultural productivity and thereby internal migration. The population in rural areas falls and large cities such as Malmö, Gothenburg and Stockholm grow. It is also primarily in these regions that growth is generated. Secondly, the shrinking agricultural sector is reflected in a corresponding increase in industrial employment. Manufacturing occupied over 30% of the labour force in the 1950s when this part of Sweden’s corporate sector was largest in terms of employment. Thereafter, the proportion of employed in this sector has fallen. Finally, the really dramatic development as regards increased employment is the expansion of the service sector.