samchain/econo-pairs-v1 huggingface dataset:
The interest rate regains its role as a policy instrument After the drop in oil prices and the last devaluation of the krone in 1986, the interest rate had to be set to support our currency. The alternative was further devaluations, high inflation and economic instability. With a binding commitment to a fixed exchange rate policy from early summer 1986, interest rate setting was largely shifted to Norges Bank. 30 High inflation is associated with substantial real economic costs. This came into evidence when we managed to bring inflation under control again in Norway at the end of the 1980s. The fixed exchange rate policy was crucial in this context (see Chart 3). 30  Hermod Skånland dates this to December 1986 (see Skånland (2005)): “Tilbakeblikk på 20 år med ny sentralbanklov” [“A 20 year retrospective on the new Norges Bank Act”], Penger og Kreditt 3/05 (Norwegian only). In my opinion, this shift occurred earlier. 8  BIS Review 154/2010  Perhaps we can say that the pendulum had swung back from the view that prevailed in the early years after the war. At that time, it was not Norges Bank, but on the contrary fiscal policy and the detailed regulatory system that had failed. Norges Bank had to be given a greater role again in promoting a well functioning economy. Later, it would transpire that having brought inflation under control and a series of farreaching structural reforms in the 1980s and early 1990s, would pave the way for two golden decades in the Norwegian economy.

Ethical choices in an open economy], Høyskoleforlaget, and Fritz Hodne and Ola Honningdal Grytten (2002): “Norsk økonomi i det 20. århundret” [The Norwegian economy in the 20th century], Fagbokforlaget. 14  BIS Review 154/2010  bank. The central bank did not provide long-term loans on a large scale. 46 This distinguishes the management of the financial crisis in Norway from a number of other countries in that we are of the view that it is appropriate for such medium-term financing – as in the case of solvency support – to be provided by the government and not Norges Bank, if the situation has reached a point where this is necessary. 47 The measure is given a broad democratic grounding through government and Storting deliberations. This approach also serves to counter the kind of criticism that was levelled at Norges Bank when it provided funding for banks in the mid-1980s. Financial imbalances ordinarily build up over a long period before they trigger a crisis. Internationally, measures intended to prevent systemic risks in the financial sector are usually referred to as macroprudential policy. The government authorities should primarily use structural measures to dampen selfintensifying forces behind credit growth and rising property prices. The most important measure will be to increase banks’ capital requirements. The international minimum standard for banking regulation will be strengthened under the forthcoming Basel III framework. However, we note that some countries do not wish to subject their banks to stringent standards.
Those dangers are often linked to excessive risk-taking in the credit or asset markets leading to episodes of financial instability. In that situation, it may be difficult for monetary policy to meet its objectives since the relationship between certain key variables and interest rates becomes unstable. Moreover, as market volatility increases, the ability of central banks to affect the relevant interest rates becomes more uncertain. The conduct of monetary policy then becomes much like steering a boat in the middle of a dark stormy night. Even if the likelihood of such episodes of macroeconomic distress is low, the considerable implications in the economy and in terms of welfare have led to increasing concern among central banks and much discussion and research on what the monetary policy response to this kind of underlying risk could and should be. There is now a broad consensus among central bankers that they should not directly target asset prices, and I must include myself among those who share this view. Detecting unsustainable patterns of asset prices or indebtedness ratios in real time is a complex task in practice. But even if central banks were able to do so, there would still be a lot of uncertainty as to how those financial imbalances would react to a specific change in monetary policy.

However, to have an impact on the real economy, there must be a way to transmit this signal all the way to the financial activities that determine economic transactions, such as business capital formation, household consumption and savings. The traditional channel is through commercial banks. And now we have another channel through the corporate bond market. This channel is poised to grow more rapidly in the future. The second aspect is that central bank also operates in the government bond market in its conduct of monetary policy. It can sell and buy bonds to pump money in or out of the system, through their open market operations. An efficient, deep and liquid bond market therefore will not only help make the intermediation process competitive and active - but also allow the central bank to transact in the market more effectively. The third aspect is the function of the bond market in managing the capital flows. Emerging market economies when they are successful tend to attract capital inflow very quickly, and in very large quantity. Unfortunately, if things turn bad, the outflow of capital can also be equally quick and in as large a quantity. How can one better manage this volatile capital flow? To some extent, I think the risks can be mitigated with a well functioning bond market.
Speaking from Thailand's own experiences and limitations, we realize that both planned and unforeseen challenges will mark our path towards eventual compliance. As such, we have taken some initial steps to check the readiness of financial institutions to conform to the credit risk guidelines under the New Capital Accord. A full impact analysis will be conducted next year. Going some way to prepare for the more sophisticated methodology embodied in the New Capital Accord's treatment of credit and operational risk, we are requiring, as a first step in the same spirit, that financial institutions calculate market risk capital charge in 2002. Actual capital requirement will be made, tentatively, in 2003. Although the complexity of credit risk and internal rating approach will add new difficulties even after market risk is mastered, we believe this step will serve to focus the attention of top management of financial institutions and supervisors, ensuring they will stay alert to other complexities that follow. In this connection, we would like to take this opportunity to thank Mr. Roland Raskopf and Mr. Jason George, who last October were kind enough to give Thailand's banking community excellent, and much appreciated, presentations on market risk, after which we received many calls from awakened private bankers for advice on how to plan the adoption in their banks. I should also like to take this opportunity to express our appreciation to Mr. George, who spent three years at the Bank of Thailand as consultant to help us build up our supervisory capacity.

Broadly speaking, economic and monetary developments and prospects provide growing signs of an ongoing recovery, mostly indicating that the upswing will gain momentum during the coming winter. Some slack still exists in the economy, however. There are no clear signs of a turnaround in the labour market and seasonally adjusted unemployment has still not decreased. Leading indicators such as credit growth, business surveys of labour demand, and growing turnover and imports nonetheless strongly suggest that demand will rise in the near future. Boosted by increased quotas during the  4  BIS Review 45/2003  coming fishing year, more public sector construction projects and aluminium industry investments, a reasonable level of output growth can be expected this year. However, since the growth rate is below estimated potential, the slack in the economy will increase slightly compared with 2002. The growth rate in 2004 is expected to exceed estimated potential at 3½%, meaning that the output gap could turn positive next year. Inflation will nonetheless remain below the Central Bank’s target until the final quarter of 2004, according to the forecast. This is explained by the low current rate of inflation and excess output potential. Two years ahead, inflation is forecast to creep above the target. On the whole the future looks fairly bright, but as always we should not allow the celebrations to get out of hand. BIS Review 45/2003  5
A hike in interest rates would directly affect households’ purchasing power, especially given that households are increasingly taking variable-rate loans. A drop in house prices would also reduce their wealth. So, should interest rates rise and housing prices fall, it would have a bigger impact than before on households’ purchasing power, and thereby probably on consumption and saving as well. This brings me to the connection to price stability. Now and again we hear concerns in the public domain about the effects that households’ higher sensitivity to interest rates and asset prices could have on future consumption and thereby on economic developments in general. Several voices have called for monetary policy to be more attuned to this. Shouldn’t interest rates be raised to curtail a build-up of debt and a rise in housing prices? Should housing prices fall rapidly, might not demand and thus inflation be affected in a way that is not taken account of in the Riksbank’s forecasts? And, looking somewhat further ahead, might it not have a real economic impact that the Riksbank would also have reason to take into consideration? These highly legitimate questions are often based on concerns that some kind of speculative bubble has been blown up, in much the same way as in the commercial property market in the early 1990s or in the equity market ten years later. Let me first address the question of the forecasts.

Finally, it is important that the world’s major private financial institutions run themselves with a sufficiently strong financial cushion, a cushion calibrated not just against the risks they confront in this uncertain world, but to the much more central role they play in many markets. Particularly for those institutions whose size and scope make them systemically important, capital, liquidity, and the overall risk management and control architecture need to be exceptionally strong, stronger than would be necessary and appropriate for smaller institutions. The consequence of size is not just that failure or the perceived risk of failure at one of these institutions has larger negative implications for the financial system today than would be the case in a less consolidated world. It is also the case that their greater relative size limits their ability to take actions that would reduce their exposure in the event of a shock without creating the risk of magnifying the shock. Let me conclude by noting the overwhelming significance of the economic policy decisions we make here in the United States to the world’s capacity to deal with these broader challenges. Our impact on global economic activity and on international financial stability is greater than simple measures of our share of GDP. When we are strong economically, the world can more easily tolerate economic weakness outside the United States. When we are less strong, the impact on the world economy is powerful. This has been true for some time.
Despite ultraaccommodative monetary policy, most advanced economies have not attained so-called escape velocity. •  The legacies of the financial crisis – in the form of debt overhangs – continue to exert a drag. •  The structural deficiencies in the major economies, such as under-investment, cast a dark cloud on future potential growth. But one thing that ultra-low interest rates over the past six years have clearly done is to depress returns, particularly in fixed income assets. •  US bond returns since 2009 has averaged 2.3% p.a. compared to returns of 5.8% p.a. over the past 20 years. This has contributed to a more challenging investing environment for government funds – namely pension funds, sovereign wealth funds, and central banks – many of which have significant allocations to developed market fixed income instruments. Mean reversion is a key tenet of investment theory – the expectation is that as interest rates normalise, returns should revert to pre-crisis levels. But the cliché that this time is different could well be true. Secular trends weigh on future economic growth, and consequently the real return on investment. Drivers of future economic growth What are the prospects for future economic growth? There are, in my view, four key drivers of long-term growth: deleveraging, demographics, productivity, and energy. Let me elaborate on each of them. First, deleveraging. Global balance sheets need to undergo significant adjustments. This is a structural issue that will take time to address.

To sum up the impact of the four key drivers of growth, deleveraging and demographics are quite unambiguously a dampener while energy appears a benign force. The long term trend for productivity is hard to predict. But even assuming a generally optimistic prognosis for productivity, it is quite likely that global growth in the next 20 years is likely to be lower than in the last 20. This means that returns from financial investments are also likely to be lower in the next 20 than in the last 20. Safeguarding long-term returns The modest outlook for long-term economic growth presents a major challenge for government funds to close the widening gap between their financing needs and investment returns. •  On the liabilities side, population ageing in the advanced economies will increase pension claims and place a heavier burden on social services such as healthcare. •  On the assets side, slowing global economic growth will constrain investment returns. There are three ways to narrow this mismatch between trends in assets and liabilities: •  The first is to reduce financing needs by lowering social expenditures or increasing fiscal revenues. Both are politically difficult to do. •  The second is to reach for yield by taking on various combinations of higher leverage, longer duration, and greater credit and liquidity risks. But the public perception and character of government funds limit their scope for aggressive risktaking.
This suggests the UK’s lost decade for real pay can, to a significant extent, be accounted for by macro-economic developments: cyclically, the large pool of unemployed that built up immediately after the crisis, generating a drag from the unemployment gap; and structurally, from lower levels of productivity and a lower NAIRU than in the past. With those accounted for, there is far less of a pay puzzle left to explain. The Wage Bargaining Game  A more granular look at the labour market suggests, however, that it is not behaving identically to the past. Tectonic shifts in the labour market - cultural, contractual, technological, organisational – have come thick and fast recently. Because this structural change is slow-moving, it is difficult to detect in monthly pay movements. On a longer fuse, however, empirical evidence suggests these seismic shifts in the jobs market are influencing pay significantly. The Phillips curve plots the relationship between the stock of unemployed and wage growth. Another strand of the labour market literature has looked instead at flows of people into and out of work and the associated 7  process of job-matching between employers and employees. In these models, pay is determined by flows of workers between jobs, and by the relative bargaining strength of employees and employers, as well as by fluctuations in labour demand and supply. 7  For example, Moscarini and Postel-Vinay (2017).

Anita Angelovska Bezhoska: Address – Balkan Business Week Address by Ms Anita Angelovska Bezhoska, Governor of the National Bank of the Republic of North Macedonia, at the Balkan Business Week, Skopje, 7 June 2021. *** Dear all, Ladies and gentlemen, The world economy has been faced with one of the most severe threats ever – a pandemic capable of bringing societies to their knees by threatening their livelihoods and wellbeing. Western Balkan countries, as small and open economies, were not shielded from this global shock, but were caught on a strong footing, amidst solid economic fundamentals and absence of significant disequilibria mirrored in solid growth pattern and moderate inflation. Despite this favourable initial condition, the magnitude of the GDP adjustment was immense, with an average contraction of 6.4% in 2020, which is three times stronger compared to the global financial crisis. Although it is a common global shock that in a synchronized manner affects all economies, the scrutiny of data reveals notable differences in economic losses, which to a great extent can be attributed to the different sectoral composition of the economies, their pre-crisis vulnerabilities and availability of policy space for reaction to the crisis. The dispersion of growth outcomes ranges from -1% (Serbia) to -15% (Montenegro)1. The recession was particularly severe in countries that rely more heavily on services, especially those largely dependent on social interaction, as well as countries with industries closely tied to the European production chains.
‘Other’ includes: Reserve Bank of Australia, Banco Central do Brasil, Danmarks Nationalbank, Bank of Korea, Banco de Mexico, Norges Bank, Reserve Bank of New Zealand, Monetary Authority of Singapore, and Sveriges Riksbank. This was just the scenario for which the swap lines had been designed. Put in place after the GFC, the standing swap lines allow five major central banks (The Bank of England, Bank of Japan, ECB, Swiss National Bank and Bank of Canada) to lend dollars to their local banks, confident in the knowledge that they can back those loans with dollars secured from the Federal Reserve, short-circuiting any market dysfunction. Most of the standing swap line central banks, including the Bank of England, provide weekly dollar auctions backed by the swap lines. But take up is usually minimal, because the auctions are intended only to be backstops when markets are working normally, and priced accordingly. But that was not the situation we faced in March. Over the days following that first call, as market conditions deteriorated further, we agreed on a package of measures to mobilise the swap lines more fully: extending the maturity, reducing the price, and increasing the frequency of our operations to ensure that dollars 5  All speeches are available online at www.bankofengland.co.uk/news/speeches  5  continued to flow. The first part of this package was announced on Sunday 15 March, and further extended on 20 March. The Federal Reserve also agreed temporary arrangements with a further nine central banks.

And the sheer scale of the balance sheet interventions necessary in recent months pose important longer term questions. About the extent to which the non-bank financial system may still be capable of amplifying instability – for example through sudden non-bank deleveraging, runs on money market funds, or rigidities in dealer intermediation. And about the appropriate balance of responsibilities between the public and private sector for dealing with such vulnerabilities. 2  All speeches are available online at www.bankofengland.co.uk/news/speeches  2  I cannot give comprehensive answers to these questions today. But, in what follows, I have tried to provide some raw material for that exercise, illustrated using seven of the most vivid ‘moments’ from my own experience of the past few weeks. Moment 1: the first rumbles of thunder In the first week of March – the week before that fateful Friday 13th – we at the Bank had decided to move all of our market operations to full split site working, to reduce the risk of Covid-19 transmission. On Friday 6 March, as I was walking across the trading floor saying goodbye, my attention was drawn to a group of our foreign exchange reserves managers staring intently at their screens and talking animatedly. A big adjustment in financial markets had already been underway for some time, as expectations of slower demand caused by the global spread of the virus pulled down on equity and oil prices, and investors moved into safer assets, reducing yields (Chart 1). Market functioning had however mostly held up well.
Davíð Oddsson: The Central Bank of Iceland’s commitment to price stability Speech by Mr Davíð Oddsson, Chairman of the Board of Governors of the Central Bank of Iceland, at a seminar organised by the Iceland Chamber of Commerce, Reykjavik, 5 December 2005. *  *  *  On December 2, 2005 the Central Bank of Iceland raised its policy interest rate by 0.25 percentage points before last weekend. I do not expect that decision came as a surprise. Some people may well have read into what the Bank wrote in connection with the policy rate hike in September that the increase this time would be greater, by 0.50 or even 0.75 percentage points. No such decisions were embodied in those writings, although the Bank made a clear commitment that it takes its mandatory role seriously and would not flinch at following it with full force. Those declarations stand firm. Monetary Bulletin, which was published on the Central Bank’s website last Friday, includes a detailed account of the Bank’s assessment of economic and monetary developments and prospects, and the arguments underpinning its decision to raise the policy interest rate now. The scenario that we faced on September 27 has changed in several ways. Uncertainty about wage settlements has been dispelled, although admittedly at considerable cost. The consumer price index fell somewhat at the last measurement. House price inflation has slowed down and there are signs that a turning point has been reached.

All markets should therefore stand open to Icelandic banks for the foreseeable future. However. it is not necessarily certain that these important preconditions will be the only factors at work at any given time. They do so while market conditions are normal but markets can be volatile, especially in a climate of global economic imbalances. The US economy is very buoyant and dynamic at present. This is to be welcomed. However, other signs are less encouraging: a low level of saving, a wide fiscal deficit and a current account deficit that repeatedly hits record levels. Europe has still not recovered and the recent rise in the ECB minimum lending rate has been harshly criticised by those concerned about stagnation and growing unemployment. All these aspects of our environment call for normal caution to be exercised, not least against the background of such rapidly growing and increasingly prominent forays by Icelandic financial institutions in the international capital markets. Under such conditions we can endorse the comment by my colleague, the Governor of the Central Bank of Denmark, who said a few days ago that it was just as important to observe the speed limit in economic policy as on the roads. Now I would like to allow myself a few words about housing issues.