samchain/econo-pairs-v1 huggingface dataset:
Low demand abroad contributes to low demand in Sweden, too. And low price increases abroad contribute to low import prices at a given exchange rate. However, this does not mean that monetary policy lacks the ability to counteract these developments. I usually think of this as a rowing boat in a strong current. If we do not row, the current (global developments) will determine what direction the boat moves in. But if we row, we have a better ability to get where we want to go, particularly if we try to keep away from the parts of the water where the current is strongest. The monetary transmission mechanism is usually divided up into different channels (see Figure 6).20 The channel most often mentioned is probably the interest rate channel. A lower interest rate makes it more attractive to consume and invest. This increases demand in the economy. And in the long run, the higher demand means that prices and wages rise, that is, inflation increases. In an economy like Sweden’s, which is so dependent on international developments, the exchange rate channel probably has greater importance, at least for the development of inflation. An (unexpected) repo rate cut means that the krona weakens. The weaker krona leads to an increase in demand for Swedish goods at the cost of foreign goods. In addition, there is a direct inflation effect that arises when imports become more expensive as a result of the weaker exchange rate.

The increasing relevance of China in the world economy and in world trade following its accession into the WTO, generated a booming effect in commodity markets and world demand that more than compensated the negative effect of increases in world interest rates, giving important support for the balance of payment, fiscal accounts and the investment outlook in emerging economies. We are now at the early stages of a new and historical tightening cycle in the United States. It is reasonable to ask ourselves how comparable the current situation is relative to previous experiences. I want to make a few points here. We expect the Fed to move more gradually than on previous occasions  Why? First, the Fed prefers to err on the side of moving slowly, and markets expect so. In part, as seen in Figure 3, inflation measured as the PCE core is still low compared to its level on previous hiking cycles. Also, neutral rates are estimated to be very low this time, so the Fed considers that monetary policy is not as expansionary as the headline Fed Funds Rate suggests.  Besides, the Federal Reserve is very much aware of the financial stability risks of abrupt changes in rates. The term premium implicit in long term yields is very low, and the taper Tandrum episode of 2013 shows that it can change fast if markets misinterpret the Fed communication.
This would contribute to both better understanding and greater legitimacy for the policy conducted by the central bank. It should be added here that the Riksbank’ monetary policy is evaluated every year, that is, how the Riksbank has performed its remit. The Riksdag Committee on Finance performs an annual review based on background material such as the “Account of monetary policy”, a report compiled and published by the Riksbank. 15 In addition, the Committee on Finance occasionally hires external experts to review Swedish monetary policy. So far three such reviews have been conducted: By Francesco Giavazzi and Frederic Mishkin for the period 1995-2005, by Charles  14 Advocates of a higher inflation target include Blanchard et al. (2013), Ball (2014), Krugman (2014), Rosengren (2015) and Yates (2019). 15 See Sveriges Riksdag (2018) and Sveriges Riksbank (2018a) for the latest versions of these publications. 9 [21]  Goodhart and Jean-Charles Rochet for the period 2005-2010 and by Marvin Goodfriend and Mervyn King for the period 2010-2015. 16 Although these external reviews have sometimes touched upon issues related to the policy objective, their main purpose has been to evaluate the monetary policy conducted, based on the existing policy objective. These reviews are undoubtedly valuable and fulfil their purpose effectively, but it is something else I have in mind here. Canada has chosen a system with reviews of the central bank’s remit every fifth year. 17 The latest review from 2016 analysed, among other things, whether the level of the inflation target was the most appropriate.

SPEECH DATE:  15 October 2019  SPEAKER:  Governor of the Riksbank Stefan Ingves  VENUE:  Money Macro and Finance Research Group, London  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn@riksbank.se www.riksbank.se  Swedish monetary policy experiences after the global financial crisis: What lessons are there for other countries?∗ Thank you for inviting me. It is both inspiring and a privilege to be given the opportunity to speak in more academic contexts, such as this one. Although it was a long time since I was conducting academic research myself, I try to keep updated on what is happening, not only because it is part of the job, but also for my own interest. Now, about ten years on from the global financial crisis, I feel that we are in an unusually interesting phase. Worldwide economic events like the financial crisis, such as the Great Depression of the 1930s and stagflation in the 1970s, often have a profound effect on both macroeconomic thinking and practical policy. It is possible that something similar will also happen this time, but what a new macroeconomic paradigm will look like and what the policy implications will be is still unclear. 1 For my part, the crisis that affected Sweden and a few other countries in the early 1990s is etched on my mind, not least because, back then, I headed the so-called Bank Support Committee, which managed problems in the Swedish banking sector.
For example, I have been clear that, in the long run, the growth of derivative markets and the development of new players like hedge funds should help to price risks better and spread them more widely, and thus make the financial system more resilient. However, there is no denying that financial markets are liable to overshoot. And it is particularly important to stay alive to this risk when new records are being set for leveraged bids, returns on equity and City bonuses. Over-optimism in the financial system can have costs not just for the consenting counterparties but more broadly across the economy. By talking to you individually, drawing the threads together with our own analysis and feeding back a dispassionate but informed assessment of what your actions and plans add up to, we hope we can inform your decisions and thus help to head off instability. Low volatility One of the main vulnerabilities on our league table is low risk premia in financial markets – that is, the low level of compensation that investors are demanding to hold risk. In my remaining remarks I want to offer some observations on a closely related and interconnected topic: the low level of volatility in a number of asset classes. My colleague Paul Tucker has recently commented on low historic volatility. [Charts 2 to 4] show how the volatility of asset returns has come down for equities, bonds, and exchange rates to low levels by modern standards.

But in case four months is too long to wait, I want to use my comments today to set out our assessment of prospects for financial stability as we near the end of 2006. Recent developments Our view remains that near-term risks to UK financial stability are low. That is mainly a reflection of the continuation of broadly benign macroeconomic conditions in the UK and globally A rebalancing in global sources of growth does appear to be under way - and we are watching developments in the US economy and movements in the US dollar closely – but overall the global economy remains strong. UK financial institutions profitability and capital levels have remained robust, providing them with a buffer against future disturbances. Financial markets have also demonstrated resilience over the past six months. Markets were turbulent at the time we were preparing the July FSR. It was unclear whether we were at the start of a significant correction. The subsequent rebound in asset prices, and declines in measures of volatility, showed that it was a pause not a sustained change in risk appetite. More recently, we have seen huge losses at the Amaranth hedge fund. These losses exceeded those of LTCM, yet markets facilitated a smooth wind down in positions. That is reassuring though some questions remain about the capacity of markets to handle such a disturbance if the macroeconomic backdrop and the balance sheets of major institutions were less rosy.
Be that as it may, the economy was no less overheated than forecast in mid-2006, as witnessed by the current account deficit and tight labour market. Thus it is untenable to claim that the Central Bank’s policy rate hikes in 2006 were unwarranted. On the contrary, a higher policy rate was the main precondition for the króna to hold relatively strong, and contributed to subduing demand growth. Had the Central Bank not raised its policy rate, there is little doubt that inflation would be higher than at present. Some commentators who were surprised by the December policy rate hike apparently considered that the Central Bank had underestimated the scope of the turnaround in the economy in the second half of the year. National accounts statistics for Q3 that were published in mid- December, supposedly showing a substantial slowdown in economic activity, were repeatedly cited as evidence. The Central Bank considers it imprudent to draw sweeping conclusions solely from preliminary estimates in the quarterly national accounts, which tend to undergo sharp revisions. For this and other reasons, a  BIS Review 16/2007  3  broader range of indicators contributed to the December policy rate decision, including the current account deficit and labour market conditions. The scenario today is that commercial bank analysts expect the cycle of policy rate cuts to begin later this year than they were forecasting towards the end of 2006. In other words, they consider that more underlying pressures remain in the economy than they may have thought at the time.

As I mentioned earlier, the Central Bank left its policy rate unchanged on the last interest rate decision date, February 8. In December it raised the rate to 14.25%. This was the eighteenth hike since May 2004; prior to that, the policy rate had been held at 5.3% for more than a year. The Central Bank noted that its December hike seemed to come as a surprise. The introduction to Monetary Bulletin, which was published on November 2, stated that a reduction in the policy interest rate was still not in sight, in spite of substantially brighter inflation prospects. On the contrary, it was impossible to rule out a further policy rate hike in order to attain the inflation target within an acceptable timeframe, and the analysis presented then implied that there were still grounds for tightening the monetary stance further. However, the Board of Governors had decided to postpone such a measure for the time being. The next interest rate decision, to be announced on December 21, 2006, would be based on the analysis in the November Monetary Bulletin and additional data that became available by that time. The Chairman of the Board of Governors underlined this message from Monetary Bulletin in a speech a few days later when he described the decision to leave the policy rate unchanged on November 2 as a deferral of an increase rather than the end of the tightening of the stance.
This should be set against the Riksbank’s costs for conducting its operations, which amounted to around SEK 750 million a year. Net interest income was thus almost ten times higher than expenditure. If we make the same calculation for 2014, the picture is rather different. Based on the interest rates that applied at the turn of the year, net interest income is around SEK 3.5 billion. Now the bank also has sizeable interest expenditure amounting to SEK 2.4 billion (and this despite the repo rate being zero, so the bank does not pay interest on liabilities in Swedish krona). Net interest income is thus SEK 1.1 billion, which still covers the costs of conducting the bank’s operations – but now with a much smaller margin than before. As you can all see, this is a very rough and simplified calculation. The return on a bond portfolio is not just determined by the interest rate at a particular point in time, but also by the yield curve and how it moves over time. We have calculated this, too, and when we estimated the expected return on the foreign currency reserve, we have used data from interest rate forecasts by the National Institute of Economic Research.6 From 1988 onwards, the Riksbank’s results have on average exceeded SEK 8 billion a year. I have chosen 1988 as starting year as this was when we began to apply the principles for how to calculate the size of the dividend, which still apply today.

This is reflected in the diversity of banking services and products offered in the Kingdom and their highly advanced level. Currently, 15 banks are operating in the Kingdom with a network of 1,251 branches at the end of the first quarter of 2006, including the branches of Gulf and foreign banks such as the Gulf International Bank, the Emirates Bank, BNP Paribas and Deutsche Bank which was opened last week. In addition, licenses were granted to several Gulf and foreign banks to open branches in the Kingdom. Also, the establishment of a Saudi bank with a paid-up capital of Rls 15 billion has been approved. Preparations are currently underway on finalizing the procedures of its establishment under the name of “Bank AlEnma”. On this occasion, I congratulate the NBK on the commencement of its operation in the Kingdom, and I wish the Bank and its staff good luck and success. BIS Review 70/2006  1
Andrew Bailey: Recovery and resolution plans Remarks by Mr Andrew Bailey, Executive Director for Banking Services and Chief Cashier of the Bank of England, at the Santander International Banking Conference, Madrid, 17 November 2009. I am grateful to Victoria Cleland, Chris Daniels, Iain De Weymarn, Andrew Hauser, Andrew Hewitt, Tony Lomas, Orla May, Maggie Mills, Sally Reid, Paul Tucker and Andrew Wardlow for their comments and advice. *  *  *  It is a pleasure to be in Madrid today, not least because finding time to reflect on the future of the banking system means that we are at some distance from the urgent fire-fighting that has characterised the past two autumns. But I would not wish thereby to downplay the importance and urgency of the rebuilding task. The past two autumns were in many ways taken up with doing what had to be done in crisis conditions. And what had to be done involved the use of public money on a scale that has been unprecedented and was previously unimaginable. There was nothing easy about that task, and from the perspective of resolving the problems of the system too often we have had to grit our teeth, accept that “we are where we are” and get on with the job in hand. Fire-fighters don’t get to choose the fires they fight, or even sometimes how they fight them. But fire prevention is better than fire-fighting.

And, the odds are that the cause of the next one will not be the same. I have been involved in mopping up problems in banks long enough to have been involved in Barings, which was an idiosyncratic fraud, not a sector-wide problem. This is the resolution element. In short, we need better fire prevention and better fire-fighting. In the UK we took a major step earlier this year by creating a Special Resolution Regime. But that is not the end of the response to the crisis. Rather, it is where “living wills” or what we now prefer to call Recovery and Resolution Plans, or RRPs, come in. I want to spend the rest of my time setting out what I think should be the role and form of these plans, and why they should be critical tools both for banks themselves, banking supervisors and resolution authorities. I have been struck by the strength of support for RRPs. In April, the G20 leaders endorsed a set of principles from the Financial Stability Board that include strong encouragement for firms to maintain contingency plans and procedures for use in a wind down, with regular reviews to ensure that they remain accurate and adequate. The Financial Stability Board cross-border Crisis Management Working Group, chaired by my colleague, Paul Tucker, has  BIS Review 156/2009  1  published principles aimed at strengthening the ability of authorities to deal with a crisis in certain cross-border financial groups.
But this can be partly or wholly offset if households and businesses lack confidence in the long-term fiscal outlook for our nation. It would be greatly beneficial if the Administration and Congress could more effectively work together to craft a coherent fiscal policy. As I see it, this would consist of two elements – continued near-term fiscal support to underpin economic activity and long-term fiscal consolidation to ensure debt sustainability. Without action in Washington, fiscal policy will turn sharply restrictive in 2012 – exerting a direct drag on real GDP growth of more than one percentage point. At the same time, the long-term path under current policy is unsustainable. It should be possible, even in a time of sharp ideological differences, to agree on some common pro-growth principles: support for demand today made possible by credible longterm fiscal consolidation, and a mix of fiscal adjustments that are supportive of future growth. This would involve making an appropriate distinction between outlays that support current consumption versus outlays that lift the economy’s long-run potential such as investment in infrastructure, research and human capital – similarly, between taxes that inhibit work and investment versus those that are more neutral in their impact. Broadening the tax base and making tax system simpler might also be helpful. Progress on the fiscal front would have an important ancillary benefit – a demonstration that Washington can put aside partisan interests and step up to the challenges our nation faces would boost household and business confidence.

Estimates of return on equity on SME and corporate lending are around 8% to 9%, which is roughly around the cost of equity for these activities, though it’s hard to say with absolute precision. Investment banking, however, is a different story; return on equity in the investment banking parts of UK banks is around 5%. It was 20% in 2010. Returns at European and US investment banks have followed a similar trend although the decline has not been as steep as for UK banks. Overcapacity, excess costs, removal of the implicit Too-Big-To-Fail government subsidy, tighter capital regulations and restructuring costs are all contributing to reduced returns on equity in investment banking. Large parts of investment banking are not meeting required returns which are estimated to be in the region of 11% overall for a sample of UK and international banks. Parts of investment banking are therefore not economically profitable. Banks have made good progress on restructuring their overall balance sheet – they have cut funded assets by nearly £ trillion since the end of 2010 – but they will probably need to shrink parts of their investment banking businesses or boost returns, for example, by increasing prices or cutting costs. Variable remuneration has fallen in absolute terms in investment banking and other parts of banks but that has been offset by an increase in fixed remuneration. Staff cost to income ratios for banks as a whole are similar to precrisis levels or if anything a little higher.
In formal terms, the General Council may only severe a member of the Executive Board from his or her appointment if “…he no longer meets the requirements which are made on him to be able to carry out his duties or if he has been guilty of serious misconduct.” 2 The legislation strengthens the Riksbank’s independence and credibility for monetary policy. For example, it should not be possible for those in power to be able to groundlessly dismiss a member of the Executive Board for the purpose of appointing their “own” decision-makers. As the question of accountability is stated in law, it is not actually the Riksbank’s task to take a stand on how this should be achieved. However, what we can do – and also strive for – is to create the best possible conditions for accountability. We do this by being as open and clear as we can. This makes it easier for outsiders to critically examine how monetary policy is conducted and how well we live up to our principles. 1  Sveriges Riksbank Act (1983:1385), Chapter 8, Article 1. 2  The Instrument of Government, Chapter 9, Article 13. 4  BIS Review 62/2007  There are also certain formal requirements for providing information to our principal. Our tasks include, for instance, presenting a written report on monetary policy to the Riksdag Committee on Finance at least twice a year. In connection with this, the Committee also holds a hearing with the Riksbank Governor.

Stefan Ingves: The relationship between the Swedish Riksbank and the Riksdag Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Sveriges Riksdag (Swedish parliament), Stockholm, 8 June 2007. *  *  *  Independence and opportunities for evaluation and accountability Let me begin by thanking you for the invitation to today’s conference. Of course it is both an honour and an inspiration to have the opportunity to discuss in such knowledgeable company the Riksbank’s relationship to the Riksdag (the Swedish parliament) and what this means for monetary policy. In recent decades many central banks have become increasingly independent in relation to the political system. This also applies to the Riksbank. At the same time, these institutions, which have often been fairly closed and secretive, have become more open and clear with regard to their objectives, motives and means. Many central banks now conduct monetary policy with more or less explicit price stability targets and the Riksbank was one of the first to introduce this type of quantified target for inflation at the beginning of the 1990s. Both our price stability objective and our independence have been written in the law since 1999. This contributes to strengthening the credibility of monetary policy. The fact that increased independence has gone hand in hand with greater openness and clarity – what is usually called transparency in central bank language – is not particularly strange. For an independent authority to gain general acceptance and legitimacy, there must be good opportunities for evaluation and accountability.