samchain/econo-pairs-v1 huggingface dataset:
The interest rate reductions and the fall in the krone exchange rate imply that inflation will gradually increase and will be considerably higher than the current level as early as next spring. After such a period of very low inflation as we have now witnessed, it is appropriate to be particularly vigilant in monetary policy in the event that inflation does not increase as projected. We have little experience concerning the effects of such considerable monetary policy easing as that seen over the past year. It is uncertain how economic agents will adapt to a real interest rate that is as low as it is now. Activity in the Norwegian economy may pick up more swiftly than expected. Excess capacity may be reduced more rapidly and unemployment may fall to a greater extent than we have projected. If new pressures arise in the Norwegian economy, inflation may be higher than projected. Growth in household borrowing, which has slowed since spring 2002, may accelerate again. A renewed rise in house prices and the debt burden may provide the basis for new imbalances in the economy. On the other hand, growth in corporate borrowing has remained very low. The projections are based on the assumption that wage growth is primarily determined by overall conditions in the labour market. It cannot be ruled out, however, that profitability in internationally exposed industries will again play a more prominent role in wage formation than has been the case in recent years.

This is also an indication that changes in competitiveness over time depend on real economic factors and aspects of wage formation and cannot be controlled by monetary policy. Household demand will probably be the most important driving force in the Norwegian economy in the period ahead. Private consumption has a considerable impact on overall demand and activity and accounts for 60 per cent of mainland GDP. There are prospects of strong growth in private consumption. The interest rate reductions are contributing to strong growth in disposable income. When households’ interest-bearing debt is substantially larger than their interest-bearing assets, a fall in interest rates will reduce household interest expenses. The magnitude of this effect depends on the impact of the key rate on deposit and lending rates to households and on the proportion of the debt that is tied to floating rate loan agreements. If we base our assumptions on Norges Bank’s figures for household net lending for 2002, interest expenses could be reduced by NOK 12-15 billion on an annual basis. This corresponds to a rise in disposable income of just below 2 per cent. Because the fall in interest rates has occurred gradually through 2003, some of this effect will become evident in 2004 if interest rates remain low. Long-term interest rates are also historically low, enabling households to fix their borrowing rate for a few years at a level that is relatively low compared with the interest rate a few years ago.
Against this background, the Riksbank has contacted the CPI Enquiry, set up by the Government, to obtain assistance in specifying an indicator of underlying inflation that is likely to be widely accepted and can be published regularly by Statistics Sweden. In the future, such an indicator might be able to have a more direct function in monetary policy, either by replacing the CPI as the target variable or by serving as an operational target or aid in the continuous work of constructing policy. The Riksbank has also asked Statistics Sweden to publish, for the time being, one or more indicators of underlying inflation together with the CPI. Perhaps I should emphasise that in no way do these initiatives alter monetary policy’s fundamental commitment to price stability. The current situation for monetary policy The question of transitory effects leads me on to current monetary policy. Transitory effects are playing a major part in the CPI’s present development. As a result of tax changes, lower interest rates and a lower oil price, since December the Riksbank has had to revise the 1998 CPI prediction downwards by about 1.2 percentage points. In 1999, too, transitory effects mean that CPI inflation will be lower than we envisaged earlier. Thus far, however, the altered picture of inflation need not have any sizeable consequences for monetary policy. It is now too late to influence this year’s path for inflation more than marginally.

Mr. Heikensten examines economic policy and the fight against inflation in Sweden Speech by the Deputy Governor of the Bank of Sweden, Mr. Lars Heikensten, at the Meeting of Almega-Affiliated Employers’ Associations on 27/5/98. Thank you for the invitation to attend your meeting and talk about economic policy and inflation. Today I shall begin with a brief review of the historical background to the fight against inflation in the Swedish economy. It is worth recalling that more than eight years have passed since it was decided in Sweden that combating inflation would have top priority. This policy has been pursued consistently ever since. After a couple of initial years that were troublesome in many ways, the results have been encouraging and Swedish stabilisation policy now looks good even in a European comparison. This will be followed by a discussion of three policy fields—fiscal policy, labour market and wage formation—that are closely linked to monetary policy, as well as some remarks about competitive conditions in Sweden’s economy. Successful results in these policy fields enlarge the room to manoeuvre in monetary policy. In conclusion I shall consider some topical monetary policy issues, including our current appraisal of inflation and monetary policy’s construction. 1. The fight against inflation and its results High inflation characterised Sweden’s economy for a number of years in the 1970s and 1980s, a period that clearly illustrates an inflation economy’s negative consequences. Repeated attempts were made to rectify the economic imbalances by means of devaluations and fiscal stimuli but development remained unstable.
Broader access: The Bank wishes to promote membership of RTGS and has made steps towards this by extending direct access to RTGS accounts for non-bank Payment Service Providers (PSPs). We will also continue to focus on streamlining the onboarding and testing regimes for direct members. Wider interoperability: We will promote ways in which users can reroute payments especially if outages occur. This will reduce the risk of downtime and help to keep the economy moving. Implementation of the ISO 20022 Common Credit Message (CCM) across CHAPS, Bacs and FPS will aide in this. Improved user functionality: The new system will be designed to better support the needs of users, for example enhanced liquidity management. And we will also look to extend opening hours. Strengthened end-to-end risk management: A more robust system with greater oversight and governance from the Bank of England has been introduced since the operation of CHAPS was brought in-house in November 2017. The Bank now has responsibility for system-wide risk management, including relationships with participants, and clearer lines of responsibility and integrated governance will help to reduce further the risks in the High-Value Payment System (HVPS).

The baht has been depreciating since late April, reducing the year-to-date appreciation against the dollar to about 3 percent. The correction is also evidence that under flexible exchange rate regime, unwarranted overshooting inevitably will be corrected by market forces. The fact is that although the exchange rate is not the BOT’s main policy tool, or an intermediate policy target, it is an integral part of our macroeconomic analysis and policy deliberation. Beyond aggregate statistics, it is also recognized that sharp exchange rate volatility can have significant impact on small businesses with less capacity to adjust. Thus, while exchange rate is allowed to play an active automatic stabilizing role under current framework, the MPC constantly monitors the impact of baht movements on the overall economy. To supplement this baseline analysis, the BOT staff also conducts projections under different degrees of baht appreciation. In a recent joint forecast exercise with the Ministry of Finance and the Office of the National Economic and Social Development Board (NESDB), the BOT’s estimate of growth impact of baht appreciation in fact proved to be the largest among the three, testifying to our conservatism. In broad terms, however, the three agencies’ analyses agree that baht appreciation alone should not derail the underlying momentum of the economy. 2  BIS central bankers’ speeches  The MPC continues to be prudent, and vigilant about the potential adverse impact of extreme exchange rate volatility.
But we have to ask what sort of operational risks might be involved. What sort of governance framework will banks need to ensure proper accountability? Could it lead to new ethical or other issues? For example, could the use of AI in credit scoring result in unfair treatment for certain groups of customers? Will AI output require additional “human” perceptive oversight? 25. To help banks, the HKMA recently issued two circulars, one on high-level risk management principles on the use of AI, and the other on the related consumer protection issues. We tried not to make these overly prescriptive, as this is a new area. The fact is that banks and ourselves are learning together. We all still need to explore exactly how technology should be implemented and overseen in practice. 26. The HKMA is conducting research in AI applications to help everyone. We are publishing some results today, in the form of an information sheet of facts and figures from an industrywide survey. One key finding is that almost 90% of our retail banks have already implemented, or are planning to implement, AI in their business applications. We will publish a series of reports in the coming months to provide more insights into the application of AI in the financial services industry. 27. We also want to work more with banks and the technology sector on developing regulatory technology, or RegTech. We all know that data analytics and machine learning can help the industry perform compliance work more accurately and more cost-effectively.

To achieve this objective, we have made it mandatory for the conventional banks to establish a dedicated Islamic banking division within the bank, create and observe a minimum Islamic banking fund, opening separate clearing account with the Central Bank to facilitate effective separation in the payments system as well as to have a separate accounting disclosure. Having these policies and infrastructure in place, we have been able to operate the dual banking system in a structured and systematic manner. Ladies and Gentlemen, Although the regulations are in place, close oversight and updated statistical reporting, supported by close monitoring through the early warning system, are necessary as measures to avoid banking failures. The global experience has shown that not all banking failures are due to economic and financial crises. The global experiences has shown that banking failures can be caused by the lack of good corporate governance in the banking institutions. Lack of transparency, lack of oversight, weak internal controls, lack of checks and balances, incompetent directors and abuse of power are among the elements of poor corporate governance. Hence, even the best regulations and supervision and the best financial safety nets cannot prevent such banking failures. The regulation of banking institutions therefore needs to be complemented and reinforced with good corporate governance.
And, in turn, it could mean a reduction in the costs of risk transfer through securitisation or credit derivatives, with beneficial effects on banks' balance sheets and liquidity. However for this to happen, banks' internal ratings will need to carry credibility in the market and, for this, transparency is essential. The transparency proposals from the Basel Committee have come under a certain amount of fire for their volume and detail. But I would like the critics to dwell for a  BIS Review 15/2001  3  moment on the alternative: a world in which banks effectively set their own capital, with no assurance of consistency or comparability from one bank to another. This is an important debate and we are keen to listen to others' views before the proposals are finalised. Turning to the possible effect of Basel on capital flows more generally, including bank lending, undoubtedly the new risk sensitivity will tend towards changing conditions for certain borrowers and issuers. This is particularly marked in the sovereign context, where, based on current ratings, approximately twenty seven sovereign borrowers will incur a lower bank capital charge versus eleven incurring a higher one. Again I would stress that the cushion of capital which most banks maintain over and above their regulatory minimum will blur the impact of the Basel changes, since in these circumstances banks' lending and pricing decisions will not be constrained by the regulatory standard.

So we also have to take a close interest in developments in overseas and international financial markets. The international bond market is of course a key example. We try to analyse the information in market prices and other data. But the real understanding of the latest developments comes from talking to market participants. Credit risk transfer markets This is particularly important when it comes to financial innovation. In recent years, instruments and markets for the transfer of credit risk have been a particular focus of change. New ways have been found to securitise cashflows which could not previously be traded, to unbundle the credit risk from loans and bonds, and to re-bundle credit exposures in different ways to create securities with different pay-offs. BIS Review 15/2001  1  The distinction between a loan and a bond is becoming increasingly blurred. Individual loans are sold into the secondary loan market, although some companies remain reluctant to see their debt traded in this way. And portfolios of loans and other cash flows, ranging from mortgage payments to recording royalties, are sold to special purpose vehicles for securitisation into tranches with different risk characteristics and maturities, from AAA to junk, and from commercial paper to long-term bonds. Portfolios of bonds are also repackaged, sliced and diced in a similar way to create collateralised bond obligations. The new area of growth at present, however, is not in these sales of assets to remove them from the balance sheet.
In a sense it is also much too early even to think about this question, given that the terms of the UK’s exit from the EU, and its future relationship with it, are still far from clear. And this will of course be a question for the Government and Parliament to settle when the time comes. However, in its own way Britain can be pretty stylish so I and colleagues at the Bank have been spending a little time thinking about this issue, in order to be ready to offer views when the time comes. We have begun, of course, with first principles. As I am a practical person I always approach first principles with a degree of caution, but nonetheless in principle at least it must be good to have principles. So here are a few, which I would argue should form the basis of any regulatory regime which aims to deliver safety and soundness and financial stability in a UK context: 2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2  1. Robust prudential standards. This one may be in the category of “so obvious why do you need to say it?” But I think it’s vital that this is stated as the first and most important feature of any credible framework for prudential regulation. The goal is to ensure continuity in the supply of vital financial services to the real economy throughout the cycle, including after severe shocks. All other principles should be subordinate to this one. 2.

Several years of debilitating external debt, regional political instability, and doubtful macroeconomic management have all played a role in keeping private capital flows away from our economies. However, with endurance, progress in the region generally and Zambia in particularly is certainly being recorded. A glimmer of hope is finally showing that we are once again being welcomed in the international capital market arena. As you are aware, the Government has over the years set out programs to reform the country’s political and economic platforms. Politically, Zambia has been one of the most stable democracies in Africa boasting peace since independence in 1964. On the economic front, Zambia has made respectable progress in the area of macroeconomic management. Over the recent past, the Zambian economy has performed relatively well. This is reflected in positive growth rates of real Gross Domestic Product (GDP), low inflation, relatively stable exchange rate, stable financial sector and improved banking services. In addition, Zambia’s access to the Highly Indebted Poor Country Initiative and the Multi-lateral Debt Relief Initiative resources drastically reduced the country’s onerous debt burden from around US $ 7 billion to below US $ 1 billion. The removal of the debt burden also made Zambia more attractive to foreign direct investment and capital flows, that have been an important source of investment financing. Furthermore, over the recent past, the growth in the real Gross Domestic Product (GDP) has remained positive and above 5% for the last six years.
In particular, the Committee observed an imbalance among the key elements of the credit risk management process, with too strong a reliance upon collateral to protect against credit losses. This undue emphasis, in turn, caused many banks to neglect other critical elements of effective credit risk management, including in-depth credit analyses of counterparties, effective exposure measurement and management techniques, and the use of stress testing. The Credit Approval Process For a bank to make sound lending decisions, it needs to obtain sufficient information about the borrower. Supervisors routinely emphasize the need for banks to have an effective credit approval process consisting of formal policies and procedures, accompanied by documentation of actual credit decisions. I should note that banks’ credit exposure to LTCM was in two forms: the exposure arising from the trading of financial products with LTCM, and the exposure stemming from loans made to LTCM. Banks’ primary exposure to LTCM was through their trading activities. Loans were not a large factor in the events that transpired last fall. Regardless of whether a bank is a trading counterparty with, or a direct lender to, an HLI, it must obtain comprehensive and timely financial information about that HLI’s risk profile and credit quality, and it must perform ongoing credit analysis of that HLI. In addition, a bank must have a clear understanding of an HLI’s operations and risk management capabilities. The Committee observed weaknesses in each of these areas. Let me give a few examples.

But I do not think that problems involving unwise exposure to HLIs can fairly be blamed on the fact that many of these entities are chartered offshore. To be sure, the due diligence review that banks make for every customer should encompass the customer’s place of incorporation and its ramifications. Currently, I know of no comprehensive direct regulation of hedge funds in any of the G-7 countries. There are, however, aspects of hedge fund activities, such as commodities and futures trading, that are subject to regulatory oversight. I do not believe that it would be easy to develop a workable approach to the direct oversight of hedge funds. The reality is that imposing direct regulation on hedge fund entities that are chartered in the major industrialized countries would likely result in the movement of all operations to sites offshore. Direct regulation of hedge funds would require a high level of coordination involving the political, legislative, and judicial bodies of many countries. This is clearly beyond the jurisdiction of most banking supervisors. As bank supervisors, we have opted for a strategy that will, I believe, bring substantial nearterm results. Our approach to improving the financial system’s interactions with HLIs is to focus quickly and aggressively on the decisions by banks that could create excessive leverage or imprudent credit exposure. Perhaps our strategy can be termed “indirect”, but I am reasonably confident that it will succeed.
Examples include the troubles encountered by banks in Finland, Norway and Sweden a decade ago and the crises that hit Asia and Latin America in the latter part of the 1990s. The Central Bank of Iceland has now built up a new organisational department, the Financial Stability Department, which has the main role of monitoring factors affecting financial stability. Twice a year the Bank publishes articles on this topic in its quarterly Monetary Bulletin, an annual main study in May and a shorter account in November. In addition, the Central Bank and Financial Supervisory Authority maintain close and productive cooperation, each seeking to ensure the security of the Icelandic financial system in its respective way. Inflation targeting To return to monetary policy itself, we should recall the joint declaration on the inflation target and changed monetary policy which was issued on March 27 by the Government and the Central Bank of Iceland. See the Central Bank of Iceland’s Monetary Bulletin 2001/2 With this declaration, the monetary framework was changed and inflation targeting was adopted, whereby the fixed exchange rate with fluctuation limits was replaced by a floating exchange rate. The inflation target was set at 2½%, measured as the twelve-month rise in the CPI. The declaration stated that if inflation deviated by more than 1½% from this target the Bank was obliged to bring it back within the tolerance limits as soon as possible.

In sum, the recurrence of financial crises, the emergence of market distortions and the new challenges facing supervisors have prompted some analysts to wonder whether there would exist a dilemma between efficiency and stability. Is instability the price to be paid for the improved efficiency resulting from financial deregulation? Allow me to present now the answers I think central banks and prudential authorities could give to these questions. 3. Monetary and prudential policies should promote an environment in which financial systems are both stable and efficient  First, monetary policy should act as a stabiliser Monetary policy alone cannot guarantee the stability of financial systems, which may be jeopardised by shocks from both the financial and the real economies. However, it does have a stabilising effect. In general, the objective of price stability lowers economic agents’ uncertainty regarding future price developments. In addition, by committing itself to a long-term objective, the central bank reduces market uncertainty, which can be a source of disruption to the financial economy. Interest rates are less volatile as a result, which is of benefit to the long-term growth of the economy. To achieve this, the central bank must send clear and consistent signals to agents and markets and maintain a constant exchange of information. Financial innovation and the liberalisation of capital movements have made such communication more sensitive. Central banks must now systematically explain discrepancies between actual and projected results if they are to preserve their credibility.