samchain/econo-pairs-v1 huggingface dataset:
From a historical perspective, capital flows today are currently not so abundant and no imbalances of income and expenditure are seen that might reveal substantial misalignments. After the recessive period of 2009, slack remains in our economies, and tensions in the near future cannot be ruled out. It is therefore advisable to begin exploring the proper policy responses. In such circumstances, the first line of defense must be an active monetary and fiscal management, within a context of exchange rate flexibility and stable inflationary perspectives. This combination proved very favorable to maintain macroeconomic and financial stability in 2008-2009, and has the necessary elements to also succeed in dealing with a potential period of strong capital inflows and appreciating exchange rate pressures. Additional measures, such as a foreign exchange intervention or controls on capital inflows, cannot be a priori ruled out, and will depend on each economy’s specific circumstances and characteristics. However, in implementing them it is essential that they do not become the cause of macroeconomic imbalances by encouraging massive capital inflows. In fact, distortions often do not originate in excessive appetite by foreigners for domestic assets, but in disturbances resulting from the application of inconsistent policies. On the one hand, exceptional measures cannot be used as a substitute for, say, a more austere fiscal policy or a strengthening of prudential regulation and supervision of banking and non-banking entities.

In the future, given the weaker cyclical behavior of developed economies, these differentials will probably increase, providing renewed incentives for capital flows to emerging economies. In this case, the appearance of short-term interest rate differentials would be a symptom of cyclical divergence between developed and emerging economies. Furthermore, in the coming years, the fundamentals of economic growth across economic zones, together with the deleveraging process in the developed world, could also encourage more capital flows into emerging economies, even if short-term turbulences in financial markets delay or push back its occurrence. The fact that capitals are flowing into emerging economies with renewed vigor does not mean that all such flows are being absorbed in net terms. If inflows are counteracted by comparable outflows, no significant impact should be felt either by output or the exchange BIS Review 72/2010  1  rate. Thus, for the purposes of analyzing the exchange rate, it is important to examine net capital flows. Given the balance of payments identity, net capital inflows must equal the current account deficit plus the hoarding of international reserves, the latter being equivalent to capital outflows conducted by the central bank. In any case, the prices of assets in the economy may be affected by gross flows depending on their composition, which matters from a financial stability point of view. More complex scenarios are those where capital inflows trigger a credit and a domestic spending boom by financing the leveraging of households, firms or government.
Pessoa (2016) finds similar results for the UK in the years following China’s accession to the WTO. Further, even if people are re-employed relatively quickly after an industry shrinks, there’s no guarantee they’ll get the same wage. Economics certainly doesn’t say rising import penetration means permanently fewer jobs, but it does suggest that, if you suddenly open up trade with a country with a plentiful supply of 7  unskilled labour, that can reduce the wages of less-skilled people at home . The Pessoa (2016) study finds that, among the bottom 10% of earners in the UK, those in industries more exposed to trade with China saw a drop of around 4% in their total earnings (relative to others) over the following few years. This is partly the  6 7  Autor et al (2013). Stolper and Samuelson (1941) 9  All speeches are available online at www.bankofengland.co.uk/speeches  9  result of slightly longer periods of non-employment. It’s also because they got less well paid in their new 8  jobs . More generally, the growth in trade with developing economies has been suggested as one possible explanation of the widening dispersion of wage and income inequality in the United States (the red line in Chart 10).

13 Quoted in Irwin (1996). 14 The campaigner Richard Cobden described the opponents of Corn Law abolition as “the bread-taxing oligarchy, unprincipled, unfeeling, rapacious and plundering”. 12  11  All speeches are available online at www.bankofengland.co.uk/speeches  11  Again, it is worth remembering this point today. Much of the work on trade and inequality focuses on the potentially differential effect on wages and employment. The gross costs of trade may not be evenly distributed. As Chart 11 demonstrates, however, the gross benefits of lower import prices are probably skewed as well. On average, things that are more tradable are also consumed disproportionately by the less well-off. It turns out this pattern is common to all developed economies. Chart 12 is taken from a recent study by Fajgelbaum and Khandelwal (2016), describing what would happen to relative consumer prices, and thereby the distribution of income, if international trade with the developing world were suddenly shut down. In every country, including the UK, it’s the less well-off who would be worse affected by the consequent rise in prices. Chart 11: Benefits of lower import prices are  Chart 12: This is also true in other developed  skewed towards the less well-off  economies  Source: Fajgelbaum and Khandelwal (2016); Note: Chart shows Source: Living Costs and Food Survey, ONS  real income loss from cutting off trade. Conclusion  One often hears that political discontentedness reflects rising income inequality and that this, in turn, is the fault of the growth in trade.
The specific monetary policy response adopted depends on a number of factors, some being immediately relevant for monetary policy, others only in the long term. As soon as new tariffs are announced, the question arises as to whether they are temporary or permanent, or whether they could even lead to a raft of protectionist measures. One-off increases in duties that are merely temporary in nature will similarly take only a temporary toll on the economy, and thus do not necessarily require any monetary policy reaction. What is significant in this context is the expectations of producers and consumers. Longerterm inflation expectations in particular are of pivotal importance for the monetary policy stance. Central banks have to respond differently depending on how economic actors adjust their expectations to take account of the higher tariffs. If inflation expectations are well anchored, that is to say very stable, central banks can choose to ignore temporarily higher inflation, and can thus concentrate fully on the negative growth effects triggered by protectionism. After all, if inflation expectations are well anchored, higher prices should not lead to a damaging wage-price spiral. Inflation would come back down again sooner or later. However, if consumers and producers expect the trade war to result in steadily rising prices, this would fuel upward inflationary pressure over the long term. In this case, monetary policy would have to be tightened to address the higher inflation expectations. The way in which exchange rates react to higher tariffs worldwide is also highly dependent on the expectations of economic actors.

From 1986 to 1992 Norway had a fixed exchange rate system with a defined central rate with fluctuation margins. This system was abandoned in 1992 after extensive speculation against the krone during the period of unrest in European exchange markets. Following the decision to allow the krone to float on 10 December 1992, the guidelines for monetary policy were revised. Monetary policy was subsequently oriented towards exchange rate stability, but without stipulating a central rate with fluctuation margins. The krone depreciated slightly immediately after the crisis, but then remained stable without extensive use of Norges Bank’s instruments. Since 1996, the exchange rate has fluctuated more widely. There may be several reasons for this. During part of this period, the government budget has not contributed sufficiently to smoothing growth in domestic demand and production. Wage inflation in 1997 and  BIS Review 121/1999  6  1998 was higher than in other countries. Turbulence in international financial markets has also had an important contagion effect on the krone. In addition, oil revenues have fluctuated, which may have affected investors’ expectations regarding future developments in the Norwegian economy.
I am thinking instead of, for example, Mexico, Indonesia, Thailand, South Korea, Malaysia and Brazil. In these cases, inflated asset prices and both domestic and external debt had an important bearing on the subsequent course of events. One important lesson is that a floating exchange rate with an explicit inflation target makes it easier to avoid a situation with rapidly rising asset prices, an unduly strong expansion of credit and high short-term borrowing abroad. That does not mean that a fixed, but adjustable, exchange rate is bound to result in problems of this type. Experience from Denmark is a good example. A clear problem in Sweden’s case, however, was that in the 1980s monetary policy could not be used to counter the tendencies to strong credit growth and rapid asset price increases. Another problem, as I just mentioned, was that the fixed exchange rate policy lulled people into a false sense of security and provided an incentive for short-run borrowing in foreign currency. With a floating exchange rate, the krona’s fluctuations make the exchange risk more evident (Diagram 2). Such a regime may have other drawbacks but it does show potential borrowers that foreign-currency loans involve a risk. The stock of foreign-currency loans to households and firms is in fact smaller today than it was a decade ago. A point to bear in mind is that the problem in the late-1980s was not the strong asset price rise as such but the combination of this and heavy borrowing in Sweden and abroad.

The wealth effect tends to be symmetric, in the sense that economic activity is stimulated by rising asset prices to much the same extent as it is checked when asset prices fall. Neither are wealth effects usually all that great. Problems arise when they coincide with an expansion of credit. The effects may then be asymmetric in that they are more extensive when asset prices fall. The balance-sheet effects lead to loan losses and, in more serious cases, to the suspension of payments. In the worst case there will be a financial crisis. The situation today does not resemble what happened in the second half of the 1980s, as can be seen from Diagram 1. Asset prices have indeed risen strongly in recent years but credit has not grown to the same extent. It seems that at least to date in the present upswing, Swedish banks and their customers have had another approach to the provision of credit and to borrowing. A pause may be called for here to take a look at monetary policy’s attitude in principle to asset markets compared with markets for goods and services. The inflation targeting policy that has been introduced in Sweden and other countries in the past decade has in many cases had the purpose of mastering recurrent overheating in product and labour markets. It might be said, somewhat improperly, that the policy aims to avoid the “bubbles” that have tended to arise in these markets from time to time.
Már Guðmundsson: Lifting capital controls in Iceland Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at a meeting organised by the European Economics and Financial Centre, London, 26 May 2016. *  *  *  Chairman, Ladies and Gentlemen, Comprehensive capital controls were introduced in Iceland in November 2008, as part of the economic programme that the Icelandic authorities had developed with the IMF. The month before, around 90% of the banking system had collapsed when Iceland’s three overblown cross-border banks failed. Earlier that year, Iceland had experienced a full-scale sudden stop currency crisis during which the currency plummeted by 26%. It depreciated by another 26% during the banking collapse and in the weeks afterwards. And if this were not enough, Iceland was at this point on its way into a recession, as the big, unsustainable macroeconomic imbalances – most clearly demonstrated in a double-digit current account deficit – were beginning to correct. The economic programme with the IMF had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector.

With the supervisory pillar in place, completing the Banking Union still calls – as the euro area Heads of State and of Government recently concluded – for a common backstop for the Single Resolution Fund. And, above all, the creation of a European Deposit Guarantee Scheme. 4/5  In the fiscal policy arena, fiscal stabilisation capacity in the euro area needs to be completed through two channels: improving the member countries’ fiscal headroom and developing supranational cyclical insurance instruments. To conclude, I turn once more to the Spanish Royal Academy, which defines “challenge” as an aim it is difficult to achieve and which is thereby an incentive and a test for whosoever faces it. Economic policy-making requires constantly facing the challenges our society throws up. To quote Jean Monnet, “Nothing would be more dangerous than to regard difficulties as failures”.1 Thank you. 1  Jean Monnet, Memoirs, William Collins Sons & Co. Ltd., Great Britain, 1978. 5/5
Only in this way will they be capable of incorporating into the prices of their products and services the risks associated with climate change and, thus, helping to drive the process. As in any process of structural change, it is not sufficient to identify the investments that are going to have to be made, but also the opportunities that will doubtless arise. Here, it is worth highlighting that the exposure of Spanish banks to the activities potentially most affected by climate transition risks represents around 20% of their total exposure to productive activity. Following the international financial crisis, these exposures saw a smaller increase in default rates than the rest of the economy, even when those activities at the epicentre of the crisis – construction and real estate activity – are excluded. Moreover, these default rates have now returned to their pre-crisis levels, while in other activities they have not.13 However, our analysis suggests the lower realised risk of those activities more exposed to transition risks is, above all, a consequence of the fact that these activities are more profitable than those of the economy as a whole. However, in a scenario of internalised such costs, this profitability advantage and, therefore, the risk differential would practically disappear. This needs to be taken into account by financial institutions when they take their decisions.

Thomas Jordan: Monetary policy and the business cycle Summary of a speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the 75th anniversary celebrations of the KOF Swiss Economic Institute, Zurich, 23 September 2013. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  Monetary policy contributes to the prosperity of an economy by ensuring price stability in the medium and long term. This makes it possible to put resources to more efficient use, from an economic point of view, and also promotes investment and, with it, long-term growth. Price stability also helps to avoid undesirable distribution effects. Households with lower incomes derive particular benefit from this. Monetary policy can be used to dampen cyclical fluctuations. However, it is not suitable for short-term fine-tuning of the economy. From the point of view of the business cycle, the goal of monetary policy must rather be the reduction of larger risks and the alleviation of extreme situations. An example of one such measure is the minimum exchange rate, which the Swiss National Bank (SNB) set on 6 September 2011 to halt the Swiss franc's upward trend, thus averting a deflationary spiral and warding off the danger of a serious economic crisis. Monetary policy decisions are always subject to uncertainty. It is therefore of key importance that the SNB has a sound decision-making basis.
Interest rates were cut faster and more than would have been justified on the basis of historical behaviour. Between the third quarter of 2008 and the third quarter of 2009, the Riksbank cut its policy rate from 4.5 per cent to 0.3 per cent, a cut of 4.2 percentage points in the space of one year. We did not hit the lower bound. GDP growth and inflation did fall, but the falls were less severe and not as prolonged as would have been the case if we had not acted so forcefully. The falling trend in the long-term real interest rate has increased the risk that we may hit the lower bound more often in the future, even if we are not sure where 22 See Brainard (1967). 23  See Apel et al. (1999). 24 See, for instance, Söderström (2002). 21 [24]  it lies. In such a situation monetary policy should act more aggressively on negative impulses. Unconventional measures, such as extensive government bond purchases, may be an important measure. 25 Economists are alternatively criticised for being one-handed or two-handed – either we are too one-sided in our considerations and recommendations, or else there is too much of on the one hand and on the other hand. I mentioned earlier that “it depends” how monetary policy should react to uncertainty. When the uncertainty concerns long-term trends, monetary policy should act more cautiously. But this is not a general principle.

As a result, by issuing securities in a segmented TIPS market, the Treasury may keep realized yields on bill and nominal coupon securities lower than they otherwise would have been. The last noteworthy fiscal benefit from TIPS issuance is the fact that it reduces risk to the U.S. government in terms of the variability of its net financial position. The rate of inflation influences both the cost of TIPS and the government’s tax receipts. Thus, some level of TIPS issuance may reduce the variability of the government’s net financial position. This, in turn, should lead to a more regular and predictable pattern of issuance, which should help minimize interest costs. In summary, our analysis of the ex-ante costs of the TIPS program and the more difficult-tomeasure benefits suggests that TIPS issuance provides at least a modest net benefit to the Treasury. So, now I want to turn to a related question: Are there ways to increase the benefits? 6  See Fleming (2002), Krishnamurthy (2002), Laubach (2003). BIS Review 14/2009  5  I would be willing to make two modest suggestions here. First, it may make sense to emphasize longer-dated TIPS issuance rather than shorter-dated issuance. Analytically, the logic goes as follows. Inflation uncertainty is likely to increase at longer time horizons. Thus, investors are likely to pay a greater premium for inflation protection at longer-time horizons. This implies that the cost savings associated with TIPS are likely to be greater for longer maturities rather than shorter maturities.
Our motivation towards adopting inflation targeting as the monetary policy framework was signaled a number of years ago, as we recognised it as the most appropriate way to escape from the high inflation-low growth trap. The weakened relationship between money and inflation and deepening financial markets were among the major factors that encouraged this move. Under the proposed FIT framework, the Central Bank will aim to preserve price stability of the economy by targeting an inflation range of 4-6 per cent. We believe that this target range is desirable for a country like ours in view of the vulnerability of the economy to supply or external shocks. We will employ market-based instruments, particularly the policy interest rates and open market operations (OMO) of the Central Bank, to influence market conditions and to navigate inflation in the targeted mid-single digit range. Variables such as overall monetary expansion and credit disbursements to the private sector by commercial banks will remain as key indicative variables to guide monetary policy conduct. We have now progressed into a time-bound plan to make this leap towards FIT a reality. The period starting from 2018 will be vital in laying out required reforms to facilitate a smooth transition to a FIT framework. In this context, we have identified three important pillars as the building blocks for adopting a FIT framework; 1. Strong Central Bank mandate and credibility 2. Effective monetary policy conduct 3. Strong fiscal policy support and commitment Now let me discuss some key elements and building blocks of FIT.

Florin Georgescu: Challenging the status quo in management and economics Opening remarks by Mr Florin Georgescu, First Deputy Governor of the National Bank of Romania, at the Strategica International Academic Conference "Challenging the Status Quo in Management and Economics", Bucharest, 11 October 2018. * * * Distinguished guests, Ladies and Gentlemen, I am glad to welcome you at the National Bank of Romania, as we host today the 6th edition of this prestigious international conference, together with the National University of Political Studies and Public Administration, and the Romanian Academic Society of Management. The debates today will be held under a generous and timely topic: “Challenging the Status Quo in Management and Economics”. We couldn’t have a better moment to discuss challenges to the status quo than today, as we witness a whole range of economic, social and political forces pushing for change all over the world. If this change is in the sense of progress or not, that remains to be seen. I trust that your presentations and insights will shed more light on these trends. I confess that I had a look at the titles of the presentations in both days of the conference, and the word that appears most frequently in these titles is knowledge. And I realize that not less than 50 years ago, Peter Drucker, the philosopher and management guru, launched the concept of knowledge economy. Since then, economists and management specialists of all doctrines, put knowledge at the forefront of their views of the world.