samchain/econo-pairs-v1 huggingface dataset:
There is also a risk that large imbalances in world trade and low employment in Europe will trigger protectionism, which could reduce growth capacity even further. A pronounced slowdown in growth in the entire OECD area is also likely to lead to markedly slower growth in China and emerging economies in Asia because exports are an important driving force behind growth in the region. This could lead to an appreciable fall in prices for oil and other commodities and slackening activity in the shipping industry. In the same way that Norway has benefited strongly from the sharp international upswing in recent years, the Norwegian economy could be relatively hard-hit by such a downturn. For example, activity in the petroleum industry might decline considerably. The change in China’s exchange rate regime and the revaluation of the Chinese currency by 2 per cent will probably not cause substantial changes in the imbalances in world trade. However, the gradual occurrence of major changes in the same direction cannot be ruled out. This would reduce  demand for the US dollar. Subsequent developments will depend in part on whether the fall in demand for the US dollar is abrupt or gradual. Structural changes in world trade have been important for the Norwegian economy, not least for the rise in prices for imported goods and services. The shift in imports towards low-cost countries has come gradually since 2001. In the Inflation Report projections, we assume that the import pattern will gradually become more stable.

The resolution frameworks, in step with the text of the Directive, are structured in three phases: prevention; early intervention; and resolution in the true sense of the term. 1.- In the preventive phase, recovery and resolution plans must be designed. Recovery plans are drawn up by the banks themselves and should include a series of actions relating to the institution’s capital and liquidity in order, should the case arise, to restore its financial equilibrium. Supervisors must revise these plans, identifying potential impediments to their proper application. Resolution plans are agreed by the resolution authorities and seek to establish a catalogue of actions that the authorities might take in situations in which a credit institution is close to non-viability. 2.- For the early intervention phase, supervisors are entitled to take measures before a bank’s financial position deteriorates irremediably. These measures have helped bolster conventional tools, such as limiting dividend pay-outs. These new measures include most notably the possibility of altering a bank’s business strategy or the power to call for legal changes in a bank’s structure. 3.- The third, resolution phase is what leads to the reorganisation of a credit institution, making use of specific mechanisms. Most prominent in this connection has been the socalled bail-in, involving rescuing a bank from the inside, as opposed to the traditional publicsector bail-out. A bail-in entails the possibility of cancelling – or converting into capital – the entitlements of specific shareholders and creditors of credit institutions in a position close to insolvency.
Rather the reverse; the weak labour market and the unusually low resource utilisation point to low wage increases. This, combined with the fact that productivity usually improves when economic activity turns around, implies that unit labour costs will be weak in the coming period. We are also assuming that the krona will strengthen, which will hold back import prices. It is also difficult to believe that demand would become so strong that it pushes up inflation. It is considerations like this that are behind the assessment that I made in July; that the repo rate will probably need to remain at a low level for a long time to come. Resource utilisation will remain low during the foreseeable future and it is difficult to envisage any inflationary pressures. At the same time, borrowers should be aware that the current situation is an extreme one and that at some point in the future we will need to raise the interest rate back to a more normal level. Concluding remarks I have now described the Riksbank’s view and my personal view of developments in Sweden and abroad. Despite GDP falling heavily this year, employment falling and unemployment rising, there are now signs that an improvement is on the way. The situation in the financial markets has improved and the new information received during the summer confirms the view that the deep recession has bottomed out. But the improvement is from unusually low levels and the recovery will probably be weak.

The contribution of labour is negligible, bringing to the fore the question on declining labour participation in the region, underpinned by the demographics and the intensive emigration of young and skilled workers. But, the marked slowdown in TFP, which is an indicator on how efficiently production factors are used, is worrisome. There are many forces that can influence total factor productivity and they are all endogenously interlinked. The competiveness of the economy, the quality of human capital, quality of institutions, innovation and technological readiness are just some of them. Unfortunately, the region is not well positioned along those dimensions. The average ranks for quality of institutions and human capital, according to the global competitiveness index, stand at 63 and 53 out of 141 countries, which is still distant compared to more advanced countries. The recently published EBRD digitalisation index, on average for the region, is gravitating around 70, with a wide gap to be closed compared to the frontier of 100. Is there any role for central banks in supporting the structural agenda? Although this is obviously beyond the central banks' remit, still they can provide a support in some segments such as digitalization, which can unleash productivity revival or tackle climate risks - an issue that is becoming intensively proliferated among central banks. It is neither a coincidence nor an attempt for central banks to be more impressive and fancy. Climate risks can severely affect the capacity to grow, the prices dynamics, financial stability as well.
2 The three lines of defense model creates a set of layered defenses that align responsibility for risk taking with accountability for risk control and provide effective, independent risk oversight and escalation. In the three lines model, the assignment of risk management roles is clear and comprehensive in order to prevent gaps,  1  https://www.newyorkfed.org/aboutthefed/fedpoints.html. 2  IIA Position Paper: The Three Lines of Defense in Effective Risk Management and Control, January 2013. BIS central bankers’ speeches  1  ambiguities, or overlaps in responsibility. More specifically, the business areas are the first line of defense, independent risk management units are the second line of defense, and internal audit is the third line of defense. In the Bank, the first line of defense is comprised of the business areas that execute and support the execution of the Bank’s mission. These first line units are responsible for both the operational activities that result in risk as well as control of the resulting risks. The first line “owns” its risk in the sense that it is accountable for both positive and negative outcomes and is empowered to manage the distribution of outcomes. At its core, the three lines model recognizes the strong incentives for effective risk management created by aligning accountability and responsibility. In other words, from the perspective of the first line, there is “skin in the game,” and risk management is not viewed as someone else’s problem.

And this is why, as I have said many times, I believe there is a strong case for governance of structural reforms to be exercised jointly at the euro area level: to help each country to achieve the necessary level of resilience; and to ensure that they maintain that resilience permanently. 4 Since structural reforms in any euro area country are a legitimate interest of the whole union, there needs to be stronger ownership of reforms not just at the national level, but at the European level as well. Several countries have however made significant progress with structural reforms during the crisis, and we can already see how this has altered the relationship between inflation and unemployment. Various estimates of the euro area Phillips curve show that, while the slope has varied over time, it has steepened in recent years. In particular, there is evidence that inflation has become increasingly responsive to cyclical conditions in countries that have reformed their product and labour markets, such as Spain 5 and Italy 6. Raising potential growth Besides this issue of resilience, as the central bank of the euro area we also have another, equally direct interest in structural reforms. This is related to their effect on growth – or more specifically, the challenges posed by a period of low potential growth. International institutions currently estimate potential growth to be below 1% in the euro area, compared with above 2% in the US (Chart 3).
However, these are not always straightforward, given the difficulties in agreeing how to apply the fairness principle and because economic theory and empirical evidence are not always capable of reaching irrefutable conclusions regarding the effects of the various taxes on economic growth. 31  A first approximation that may be useful is to compare the composition of tax receipts in Spain with their composition in other European countries. In this respect, Spain stands out for its low level of indirect taxation, which includes VAT, excise duties and, as a particular case of the latter, environmental taxes. Specifically, almost half of the difference between total tax revenues in Spain and the arithmetic mean for the euro area, as a percentage of GDP, is explained by the higher proportion of goods and services taxed at the reduced and super-reduced rates of VAT. A very significant part of this gap is also explained by the lower level of environmental taxation, which is primarily the result of low taxation of hydrocarbons. As regards direct taxation, corporate income tax receipts are also low in Spain. In contrast, when taxes on personal income are considered together with social contributions, their contribution to the revenue gap with the euro area is roughly zero. As highlighted by the second phase of the public spending review undertaken by the AIReF, there is considerable scope to reconsider a characteristic feature of the Spanish tax system, namely the particularly high level of tax benefits.

Indeed, as I have said in some of my recent appearances in Parliament, in certain cases it may be appropriate to use some of the European funds to defray the initial or transition costs that certain structural reforms typically entail. One such example in this respect could be the introduction of the so-called “Austrian backpack” scheme, which various institutions (including the IMF) have recommended to combat the duality of the Spanish labour market. However, the introduction of such a scheme entails transition costs, insofar as the costs and payments implicit in the new scheme are not distributed between firms and employees in the same way as in the current scheme. These transition costs, the determination of which requires very detailed prior analysis, could be met, at least in part, by the European funds. 4 Conclusions The macroeconomic setting in which the Draft Budget has been prepared is, as we all know, complicated and uncertain. The outlook for activity and employment outlined in it is subject to significant downside risks. In such a complex situation, budgetary policy must continue 35  countering unfavourable macroeconomic developments. And this, if the downside risks materialise, includes the need to allow the free play of the automatic stabilisers, even though a bigger budget deficit ensues. In parallel, against the current backdrop, discretionary measures must be more focused on the population groups and firms most affected by the adverse effects of the pandemic.
First of all, this is because, in Spain, energy, and electricity in particular, account for a larger share of the consumption basket. While Spanish households devote 11.7% of their budget to energy, the euro area average is 10.9%. Regulatory and pricesetting mechanisms are another factor responsible for the notable unevenness across euro area countries in the pass-through to retail prices of the higher wholesale electricity price. For instance, in Spain around 40% of households opt for a dynamic pricing system, characterised by the high frequency of price revision, which explains the higher volatility of the electricity component of inflation and, thus, the faster and stronger pass-through. 8  The rising inflation is also having an uneven impact on households and firms. In particular, in recent months, lower-income households have experienced higher inflation because staple goods, whose prices have shown a greater relative increase in recent times, account for a larger share of these households’ spending. Consumer price inflation dynamics have gradually spread across the board since the summer of 2021. Thus, underlying inflation has risen rapidly, exceeding 4% in mid-2021 in the United States and 2% since end-2021 in the euro area. The underlying inflation rate has continued to increase and in April reached a level of 3.5% in the euro area (the highest in the history of the monetary union) and 3.4% in Spain (the highest since 2003). Additionally, according to the preliminary estimates available, underlying inflation in the euro area climbed to 3.8% in May.

As regards the solvency support measures for firms, according to Banco de España estimates, the funding approved could cover all the capital shortfalls of firms generated in 2020 as a result of the crisis. Nevertheless, the use of such funding so far is estimated to have contributed to reducing only a part of the SME solvency problems that arose as a result of the pandemic.16 This could owe to the fund allocation criteria not including any requirement relating to firms’ financial position, among other reasons. On the whole, the evidence available suggests that the public policy response has helped reduce the long-term consequences of the pandemic-induced crisis. Specifically, the measures implemented have managed to preserve most of the pre-pandemic employment and avoided an increase in the rate of firm closure. In particular, our latest Financial Stability Report highlights that, in the case of non-financial corporations, although the recovery in sales and the more moderate debt growth in 2021 have prompted an improvement in businesses’ financial situation, on average this continues to be more vulnerable than before the pandemic. For example, the average debt and debt burden ratios began to fall in 2021, and the percentage of firms with high debt decreased across the board, standing close to pre-pandemic levels in the moderately affected and largely unaffected sectors. In the severely affected sectors, however, it remained 7 pp higher than in 2019.
Additionally, the current ample liquidity available to commercial banks reduces the pressure on them to increase the remuneration of retail deposits. Other factors point to a potentially faster monetary policy transmission compared to past episodes. First, the current hiking cycle comes after the strong negative shock prompted by the pandemic, which adversely impacted firms’ financial situation by increasing their debt levels. This leaves them more vulnerable to interest rate hikes, and their expenditure decisions may be more sensitive to monetary policy changes. Conversely, however, households still have around € billion in excess savings built up during the pandemic and they are benefiting from sizeable fiscal policy support. Second, there has been a shift from bank to bond funding over the last decade, with bond debt increasing from 16% to 24% of non-financial corporations’ total debt.20 This, together with the faster monetary policy pass-through to bond rates than to bank rates, implies faster transmission than in the past. Third, the residential real estate market is a key area to monitor, in particular given that some euro area countries have experienced a significant increase in house prices over the last decade, with signs of overvaluation.21 Housing represents a major part of household wealth and bank assets. Thus, a potential decrease in house prices would weigh negatively on banks’ portfolios, by reducing the value of the collateral provided to banks by households and firms, which might ultimately affect credit developments.

And analysts’ expectations, as reflected in surveys conducted shortly before the meeting, showed that the DFR was expected to peak at 3.75% in July 2023 (up 100 bp since December) and to remain at that level until the first quarter of 2024. All these elements together supported our assessment that, if the baseline scenario in the March projections is confirmed, we will still have ground to cover to make sure that inflation pressures are stamped out. However, as I have said, these projections are subject to various sources of uncertainty. And this is why we are emphasising that the rate path is data-dependent. This means, ex ante, that we are neither committed to, nor finished with, further rate hikes. Let me highlight some of the sources of uncertainty. 2  The first is related to the resilience of the euro area economy. In the second half of 2022 the euro area economy proved more resilient than expected and the slowdown in the fourth quarter the year was less severe than anticipated. Indeed, the qualitative data available for the first quarter of 2023 point to an improvement in consumer and business confidence. This has occurred in a setting in which a significant reversal of previous supply shocks was observed, households and firms had substantial buffers, the post-COVID rebound in demand continued to generate positive effects and monetary policy had not yet been fully passed through. However, there is much uncertainty about the continuity of these factors.
In other cases, where a business is rotten through and through, a more “traditional” break-up of a group may be needed, perhaps using a “bad bank” in some cases. Planning for that will not be easy, and so for those extreme cases there is a special need somehow to ensure continuity in the provision of absolutely critical services to the economy. In the UK, that is one way that ring-fencing fits into resolution planning. Implications for supervision All this has important implications for prudential supervisors. In the first place, supervisors get some allies: debtholders. The prospect of taking losses will incentivise bondholders (and fellow banks) to monitor the risks taken by banks – pricing or rationing accordingly. This is market discipline: an extra line of defence. Risk being priced into bank bonds will not, as some suggest or threaten, kill the market. It would be uncertainty  4  BIS central bankers’ speeches  about the regime governing what happens in the event of distress that would kill the market because that kind of uncertainty could not be priced. Supervisors won’t be idle though. Resolution needs preparation. Hence the international agreement that firms should prepare Recovery Plans and contribute to Resolution Plans. To be clear, while the firms will own the Recovery Plans, the authorities will design and own the Resolution Plans. It has to be that way. To a much greater extent than ever before, supervisors will need to work backwards from the end game, working with resolution authorities.

Thus, three successive governments have been loyal to this guideline and it still enjoys a substantial majority backing in the Norwegian parliament. Adherence to this policy is also scrutinized closely by the public who have developed a sense of ownership of the Fund. Another important feature of the model is that there is consistency between the size of the Fund and Norway's net financial wealth. This is ensured by the Act relating to the Government Pension Fund where it is stated that the government cannot borrow as long as the balance of the Fund is positive. The Fund has become large and is still growing very rapidly. It is projected to reach 200 per cent of Norway's GDP around the year 2010. The huge cash flow into the Fund has posed an operational challenge, which I will return to later. In 2006, the name of the fund was changed from the Government Petroleum Fund to the Government Pension Fund – Global. But the name change did not imply any operational changes and the return (the 4 per cent) continues to be a general support to the budget, not ear-marked for any specific purpose. This reflects that the Fund has no formal link to a liability side. Let me turn to the management of the Fund. The Fund is formally owned by the Ministry of Finance, while operational management is delegated to Norges Bank. This arrangement is formalised through a management mandate given to the Bank by the Ministry.
Inflation and firms’ price-setting behaviour In the medium-to-long run, the average rate of inflation is determined by the rate of nominal expansion permitted by the monetary authority. But over shorter horizons, decisions taken by businesses – in particular, about wages and prices – affect quarter-to-quarter fluctuations in inflation and, more generally, how demand pressures feed through to inflation. Economic policymakers draw on a number of ways of thinking about those influences on inflation dynamics. There is no model that can, uniquely, capture the richness of the real world. But surprising though it may be to some, one of the ways in which we think about firms’ price-setting behaviour would be familiar to anyone running a business. Namely, that firms charge a mark up, or profit margin, over the marginal costs of their various inputs – labour, capital, raw and intermediate materials, etc – with both the mark up and costs varying according to current and prospective demand conditions. This is represented schematically, indeed crudely, in Diagram 1. The key feature is that when demand rises and firms utilise their capacity more fully and add to their labour force, their costs and prices tend to rise. That might involve old-fashioned ‘cost-push’ inflation, with firms raising prices to maintain margins in the face of increased (marginal) costs. Or firms might initially be able temporarily to raise margins, with labour and other costs later ‘catching up’. In either case, firms and wage bargainers will be influenced by what they think is going to happen to inflation in the future.

The internet, or e-commerce, also brings greater contestability, by making it a lot easier for businesses to check the prices of competing suppliers, and for consumers to compare prices across different retailers (Table 3). Over time, these forces would be expected to reduce firms’ margins – at least in sectors that were not previously especially competitive. So long as that process of adjustment was underway, inflation would tend to be lower than would otherwise be implied by any given set of demand conditions. In addition, if and when their margins became thinner, firms might become more aggressive in controlling costs in the face of fluctuating demand, which might weaken the pass through of demand shocks into inflation. The new monetary framework might reinforce some of those effects. Over recent years, more than a handful of business managers have commented that, when inflation was both high and highly variable, it used to be easier to implement – or ‘get away with’ – price increases. In a low inflation environment, it should be easier for business customers and consumers to distinguish relative price changes from increases in the general price level. That too should foster greater flexibility and efficiency in our economy; and is one of the contributions that low and stable inflation can potentially make to broader economic welfare. One striking example is the distribution sector. Anecdotally, competition in UK retailing has been intense. This seems to manifest itself in the aggregate data in two phases.