samchain/econo-pairs-v1 huggingface dataset:
This has played a major role in the ongoing reduction in Iceland’s foreign debt, as I will touch on later. Inflation has been at or below target for two full years. This is the longest such period since inflation targeting was adopted 15 years ago this Easter. And it has happened in spite of steep wage increases, which under typical conditions would have generated much higher inflation. But it so happens that conditions are far from being typical. Iceland’s terms of trade have improved markedly with the decline in oil and commodity prices, and tendencies towards deflation can be seen widely abroad. This has worked to counteract domestic inflationary pressures. At the same time, exports of goods and services have grown strongly, not least because of the booming tourism industry. According to newly published figures from Statistics Iceland, national income grew by nearly 8% in real terms in 2015, looking through the failed banks’ estates. When national income is measured, GDP is adjusted for income that reverts to non-residents and for changes in terms of trade. This tells us more about purchasing power in the economy as a whole than GDP does, and it explains in part why the recent wage increases have thus far generated much more real wage growth than inflation. There has been a substantial change recently in Iceland’s net external debt. According to newly published figures, external debt amounted to 14½% of GDP at the end of 2015.

It can be argued that such policy instruments should be on the law books by the time the auction of offshore krónur takes place because, if the auction is as successful as we intend, it is possible that confidence in Iceland will grow still further and capital inflows will increase. BIS central bankers’ speeches  3  Why do we need all of these additional tools and contingency measures? An important reason is the risk to financial stability that accompanies excessive and volatile capital movements that are unconnected to economic fundamentals. Another important reason is that in an increasingly financially integrated world, it is more difficult for small countries to deviate too far from the monetary policy pursued in the larger countries that determine global financial conditions. We saw this before the financial crisis, in New Zealand and here in Iceland. And we have seen it more recently, in countries like Switzerland and Sweden. We can better understand why this is so if we consider a situation where cross-border financial integration is nearly perfect, so that capital movements very quickly even out the difference in risk-adjusted real returns on assets in different countries. The interest rate channel of monetary policy transmission then becomes clogged up in small, open, and financially integrated economies, where long-term interest rates are determined by rates in large countries and transmission takes place largely through the exchange rate channel.
Examples of such intermediate variables could be current price tendencies, the money supply or resource utilisation. I intend to discuss such possibilities and then conclude by harking back to the Riksbank’s current monetary policy strategy. Alternatives to basing monetary policy on forecasts Actual price movements One alternative to the present rule of thumb could be to set the interest rate in the light of the prevailing rate of inflation. The Riksbank would then adjust the instrumental rate every time Statistics Sweden publishes a CPI outcome that is above or below the 2 per cent target. The primary argument against such an arrangement is perhaps that, compared with the present rule of thumb, it would lead to larger fluctuations in real economic activity. This is because the repo rate and inflation are not directly linked. The Riksbank’s possibility of influencing price movements is more indirect and works, in simple terms, via market interest rates, credit flows and asset prices before impinging on demand in the real economy and such variables as employment, profits, investment, consumption and net exports. Demand’s impact on prices depends in turn on potential output and resource utilisation. We still do not know exactly how this complex transmission mechanism functions, how quickly it works or how it varies both over time and in its effects on the economy. Concerning the time lag, the view adopted by most central banks is that most of the effect materialises after an interval of one to two years.

The fact that the variables to which monetary policy responds are assumed to be known at the time of decisions contributes to this. The conceivable objections to basing monetary policy on simple rules of this type concern their very simplicity. An economy is constantly being hit by shocks of different types. Neither firms nor households behave mechanically. It is therefore not to be expected that economic policy can be boiled down to some kind of auto-pilot. Allow me to illustrate this with a couple of examples. A first objection to basing monetary policy on a simple Taylor rule is that the rule assigns too much weight to a particular indicator of the output gap. The output gap is a central concept in macro theory and economic policy but that does not lessen its complexity. Potential output tends to vary over time. Changes in such factors as demography, technology, tax and transfer systems or other important components temporarily or permanently affect productivity growth and labour supply, with an impact in turn on potential output. Although considerable progress has been made in real business cycle theory when it comes to the importance of supply shocks, we unfortunately do not have a clear intellectual framework for the forces behind potential output’s variations in the short and medium term. Changes in the output gap are therefore difficult to pin down exactly in stable measurements. The methods used to estimate potential growth and the output gap from econometric models tend to yield conflicting results that are also unstable over time.
This inflation corrodes the households' purchasing power, increases the uncertainty for the future in every cell of the economy, heightens the volatility of financial markets, and damages the long-term perspective of development. Therefore, the primary focus of economic policies should be the undertaking of coordinated measures to mitigate the cost borne by inflation, and control and return it to its target, in the shortest time period and with the lowest cost possible. Against this backdrop, the Bank of Albania has embarked on the gradual normalisation of the monetary policy. This normalisation is undertaken in parallel with all the other central banks, across the region and around the world, which are facing the same high inflation phenomenon. It engenders a progressive raise of the key interest rate, by slowly changing the nature of the monetary policy stance from the current position, which has been stimulating, towards a more neutral position, which provides a more sustainable support for the long-term growth of Albania. During the discussions of the past two weeks, we have gladly observed that our viewpoint is also shared by the IMF Mission and the Ministry of Finance and Economy. 1/2  BIS - Central bankers' speeches  Our future projections suggest that inflation will continue to remain high in the two next quarters as well. Furthermore, the stabilisation of prices in foreign markets and the normalisation of the monetary policy stance will induce a progressive reduction of inflation, until its return to the target in 2024 H1.

To this end, the Bank of Albania will continue to work diligently for: the prudent regulation and supervision of the banking activity; the financial market and payment system development; the promotion of the financial stability of the country, as well as for bolstering the financial education and inclusion of the public. Although the challenges facing ahead are not few and far in between, I am convinced that the banking industry will continue to remain a trusted partner to Albanian enterprises and households. In conclusion, I would like to stress out that the Bank of Albania supports and encourages the structural reforms. This agenda of reforms has now found a stable anchor in the process of negotiations undertaken in the framework of the European Union membership. The continuous investment on reforms, which boost and encourage the macroeconomic stability of the country, the improvement of the business climate, the increase of efficiency and competitiveness, the improvement of human and institutional capacities, as well as the comprehensive development of infrastructure, is the one and only path toward a faster economic and social progress. 2/2  BIS - Central bankers' speeches
It tracks how most markets have continued to improve towards normal levels (on these indicators at least). An interesting exception is markets for bank funding instruments in Europe, which have become subdued as commercial banks have de-levered and central bank operations have provided cheap medium-term funding in large scale. Perhaps the worst functioning is the market for CMBS which has still not really returned in the UK (in contrast to CLOs which have made a comeback this year). Chart 2 Market functioning “heat map” based on issuance and spreads data(a)(b) P R I M A R Y  Corporat e bonds Bank bonds, unsecured  RMBS  CMBS  S E C O N D A R Y  Corporat e bonds Bank bonds, unsecured  RMBS CMBS  United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States United Kingdom Euro area United States Euro area  N  2007  08  Very loose  Loose  Normal  NN NNNNNNNNNNNNNNNNN NN N NN N N NNN N N N NNNNNNNNNNN N N N NN N N N N N NNNNNNNNNNN N N NNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN NNN NNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN N  09  10 T ight  11 Very t ight  12  13  No Issuance  Sources: Bloomberg, Dealogic, JP Morgan Chase & Co, Bank of America Merrill Lynch and Bank calculations.

Many of those assets remain impaired and are being run off or sold off where possible, negatively impacting banks’ lending figures. And given the losses suffered by most banks on these portfolios, there is a natural reluctance to increase lending to that sector again. One reason we’ve not yet seen a significant expansion in total lending is  10  BIS central bankers’ speeches  that banks have tightened their credit assessment criteria since the crisis and have not changed them following the launch of the FLS. Some borrowers will find that frustrating. But from the banks’ point of view it is a prudent thing to have done, so they don’t get back into the troubles they were in before. Chart 7 Net lending by FLS participants(a)  (a) Net flows of sterling lending to UK households and private non-financial corporations. Non-seasonally adjusted. (b)  The sum of net lending by those participants with positive net lending during the quarter. (c)  The sum of net lending by those participants with negative net lending during the quarter. When considering the corporate lending numbers, it is important to remember that many companies (particularly large firms) are making increased use of capital markets to raise finance. Bond issuance by UK businesses remained strong in 2013 Q2, following a Q1 figure which was the highest since 2009 Q2.
The financial crisis 2008–2009 hit households in Sweden through a large fall in GDP, a rapid increase in unemployment and housing prices that fell by 10–20 per cent depending on which statistics you use (Figure 1). The euro crisis has recently entailed a new stress test. Swedish households and mortgage borrowers have also passed this test with flying colours. The Riksbank’s inquiry into the risks in the housing market also observed that resilience in the Swedish mortgage market was good. It estimated the effects on the economy of a fall in housing prices of 20 per cent and concluded that the effects would be relatively small, particularly if they are counteracted by a more expansionary monetary policy.19 One important indicator of sustainability and resilience is the household saving ratio. Swedish households’ saving ratio is now historically high, while it was very low prior to the 1990s crisis, minus 3 per cent at its lowest (Figure 2). A high saving ratio means that households are increasing their real and financial assets and that their consumption is not funded by loans. A low saving ratio and a loan-funded consumption boom, which was the case in Sweden prior to the 1990s crisis and in the United States prior to the most recent crisis, is on the other hand problematic and not sustainable.

For example, there may sometimes be a little too much focus on the potential antagonism and differences of opinion within the Board – and in the worst case on a person rather than a policy. But one positive effect that people perhaps do not think about is that topical and important issues, often those in the forefront of academic research, are quickly implemented in the Riksbank’s practical work. The fact that the Executive Board publicly debates what role the policy rate should play to influence household debt means that the Riksbank’s analysis apparatus is activated on this issue to a greater extent than would have been the case without this open discussion. Although I would not say that there are any more concrete results yet, there is definitely a lot of deliberation being put into this issue. I do not believe that this would have been the case – at least not to the same extent – if all of the Board members were agreed that the repo rate should be held slightly higher to subdue household debt. In other words, the open debate hopefully helps us to move forward in this field. References Armelius, Hanna and Hans Dillén, “The relation between household saving and falls in house prices”, Economic Commentary no. 4, 2011, Sveriges Riksbank. Assenmacher-Wesche, Katrin, and Stefan Gerlach (2010), “Monetary policy and financial imbalances: Facts and fiction”, Economic Policy 25, pp. 437–482.
Likewise, Malaysia’s currency in circulation (CIC) over GDP of 6.1% is much higher than 3.8% on average in these countries. Over the past three years (2010 – 2012), cheque volume has declined only marginally at an average rate of 0.2% annually and the CIC over GDP remained at 6%. Malaysia has a banking population of 92% of which about 70% are internet banking subscribers. Moreover, the household broadband penetration rate in Malaysia has increased significantly from 32% in 2009 when we introduced the electronic processing of cheques, to 67% as at end-Sept 2013. With the necessary infrastructure in place, it is timely that all Malaysians migrate to electronic payments in our quest to become a high income, high value-added economy by 2020. To nudge the systematic migration to electronic payments, Bank Negara Malaysia has set targets in its Financial Sector Blueprint to reduce the number of cheques processed per annum by half from 204 million in 2012 to 100 million by 2020. At the same time, there are also targets to increase the number of Point-of-Sale terminals from 9 in 2012 to 25 unit per 1,000 inhabitants and to increase electronic payment transactions per capita from 56 in 2012 to 200 by 2020. Only by migrating from cheques and cash to electronic payments, can the country anticipate to achieve further cost savings and efficiency gains. Cost of cheques Although significant improvement has been made in the cheque processing infrastructure, cheque remains an expensive payment instrument to process at about RM3 per cheque.

The total cost is even higher when we take into account the cost incurred by the payer and payee in delivering and depositing cheques. It is estimated that cheque processing cost Malaysia about RM768 million5 per year. This amount is huge and a sheer wastage. Correcting distortion between paper-based and electronic payments Despite the cost incurred in processing cheques, cheques have not been priced directly to reflect its costs except for the stamp duty of 15 sen per cheque. On the contrary, electronic payment services such as the Interbank GIRO (IBG) are priced above cost at about RM2 per transaction. Such price distortion does not incentivize the adoption of the more efficient electronic payments on a mass scale. In advanced countries such as Australia, Norway and Sweden, electronic payment services are priced lower than cheques consistent with their respective cost of production. The correct price signals that reflect the real cost of cheques and electronic payments had facilitated a broad shift from the use of cheques to the use of electronic payments. We need to correct this price distortion between cheques and electronic payment services, Bank Negara Malaysia has announced a new pricing strategy for payment services in March this year where the price of IBG and cheques are aligned closer to their cost of production. With effect from 2 May 2013, the transaction fee for IBG conducted via internet and mobile banking was reduced to 10 sen from RM2 previously.
2  BIS Review 38/2002  Hong Kong In Hong Kong, other contributors to deflation over the past few years have been the general strength of the US dollar and the process of price equalisation across the border with the Mainland, although both the IMF and we in the HKMA have found that this latter effect is rather weaker overall than a few 5 well publicised examples might lead one to believe. Hong Kong's deflation, of some 12% in CPI terms over four years, seems, however, to be considerably more than could be accounted for by the above list of essentially non-cyclical factors. We therefore infer that much of it has been cyclical. To what extent has the currency board been responsible for this cycle? About half of the fall in our CPI can be attributed to a collapse of property prices, which feed through both directly and indirectly to the CPI. This in turn was largely the result of the bursting of a previous asset price bubble. This is the part of our deflation which may appear most obviously to be linked to domestic monetary conditions rather than to any global cyclical factors.

Nevertheless, monetary policy might usefully be engaged to avert it. c.  Globalisation and the pervasiveness of the law of one price  Returning to the factors behind current price trends, there is one aspect of globalisation which may be especially relevant. This is the rapid expansion of the range of globally traded output (in contrast to efficiency gains within some pre-defined range), with resultant implications for prices. In the past it was common to observe more rapid domestic inflation in economies enjoying faster productivity growth, as wages rose and the prices of non-tradables accelerated, dragging up the consumer price index. This mechanism, based on an assumed clear analytic distinction between price behaviour of tradables and non-tradables, may still be at work, but surely it is not as powerful as it used to be. The range of tradables is expanding relative to that of non-tradables. While it has long been acknowledged that progressively more goods are becoming tradable because of, for example, advances in freight transportation, the revolution in respect of services may now be more significant. Thus, many services which were in the past produced only in the country where they were consumed can nowadays be outsourced offshore or accessed from somewhere else in the world at the click of a mouse - back-office processing, multi-functional call-centre services, legal advice, logistics management, design services for everything from clothes to buildings, and even certain forms of medical consultation or education, to name but a few.
However, having witnessed the collapse of the Soviet Union and the revolutions of various colours in other communist countries, they will, like their elders, be extra careful in feeling the stones as they cross the river. They look at Singapore as one such stone in their river crossing. In 2004, I proposed to then-Prime Minister Phan Van Khai for Singapore and Vietnam to connect our economies. He took sometime to think over it before responding positively. Our two countries have since signed the Connectivity Agreement, which enables Vietnam to leverage on Singapore's strengths in sectors like finance, tourism, aviation, telecommunications and human resource development. Singapore is a base for MNCs and well-connected to other parts of the world through trade, communications and transportation. By connecting our economies, Vietnam plugs itself into the global grid. Indonesia Now, Indonesia. It has the potential to take off but more work needs to be done - on policies, institutions and implementation. Indonesia had enjoyed strong growth for three decades, from the 1970s to the mid-1990s. Unfortunately, the Asian Financial Crisis in 1997 grounded the Indonesian plane. But the engine is being overhauled and the plane refitted. Banks and firms have cleaned up their balance sheets. Macroeconomic indicators have improved. President Susilo Bambang Yudhoyono has gathered a competent crew under him. The Indonesian plane is now on the runway and lining up for take-off. President Yudhoyono has implemented some difficult but much-needed reforms.

As such, “Policy dilemma” in Emerging Market Economies is likely to become more pronounced, especially as policy rate hikes from external front are imminent. Along the way, clear and timely policy communications from Advanced Economies will be useful to prepare for any adverse side-effects going forward. Part III: Key policy takeaway and the importance of policy collaborations Ladies and Gentlemen, In preparation for upcoming challenges, policymakers wish to do better than passively “catching up” with the crisis, but to be actively “ahead of the crisis” in order to prevent, or at least, mitigate the impact should one occur. Against this backdrop, lines of policy defenses for each economy have to be strengthened. 2  BIS central bankers’ speeches  If we think of the economy as our own house, then keeping the house in order is always an effective first line of defense. Strong economic fundamentals and macroeconomic policy credibility would play a crucial role in ensuring confidence and the sustainable economic activities. Nonetheless, increasing interconnectedness has made housekeeping more difficult as it creates spillovers. To better deal with the shocks, broader set of policy tools are called for. In a nutshell, sound macroeconomic policy and flexible macro-prudential measures to target vulnerabilities have been employed to minimize unprecedented impact in an appropriate and timely manner. Nonetheless, these policies are reaching their limits, not only in terms of policy space but also effectiveness. For a better solution, reforms in both the financial and real sectors are essential.