samchain/econo-pairs-v1 huggingface dataset:
Consequently, the monetary policy significance of temporary variations in the CPI in the near future should not be exaggerated. However, if long-term inflation expectations and wage formation risk being tangibly affected, we should consider taking measures. How should the exchange rate be taken into account? The Riksbank has no target for the exchange rate, but, in a small, open economy such as Sweden’s, the exchange rate is an important determinant for both inflation and resource utilisation. However, the analysis of exchange rates is an admittedly difficult area. I will explain some of the difficulties involved in this analysis, as well as how they have affected my view of the manner in which the exchange rate should be handled in the monetary policy analysis. The exchange rate’s empirical relationship with interest rate differentials in relation to other countries Let me first clarify my earlier claim that a greater interest rate differential in relation to other countries than that forecast in the Riksbank’s main scenario may lead to a greater appreciation of the krona than that forecast by the Riksbank. The theoretical basis for this is formed by a condition known as uncovered interest rate parity. This is a theoretically fundamental concept and is used frequently. Uncovered interest rate parity says that the interest rate differential between two countries corresponds to the anticipated change in the exchange rate during the period in question.

During several of the initial years of the inflation-targeting regime, the Riksbank used an MCI in its monetary policy analysis.3 Its intention during this period was to demonstrate very clearly that, in a small, open economy, the exchange rate influences inflation and resource utilisation. Today, the Riksbank no longer uses any such index as a summarising measure. One reason for the abandonment of MCI was that it could be interpreted in an excessively mechanistic way: when the exchange rate weakened, MCI tended to be used in a simplified manner as an argument for a higher interest rate, and vice-versa. Considering the wide fluctuations that can take place in the exchange rate over short periods, an MCI in which a large weight is placed on the exchange rate means that very large changes to the interest rate may be demanded to compensate for exchange rate fluctuations.4 The exchange rate pass-through on import and consumer prices is uncertain The price of imported consumer goods is partially determined by the exchange rate. If the krona is weakened, importers must generally pay more in Swedish kronor for goods bought overseas. Importers must choose how to handle this. Should they increase their prices to compensate for the increased purchase prices or should they reduce their margins? The answer to this question depends on a number of factors. In the short term, importers may avoid price changes, as far as this is possible.
Compared with the December Inflation Report the forecast for GDP growth in 2005 has been revised up marginally to 3.2 per cent, mainly due to higher investment and increased services trade. Towards the end of last year investment in the economy grew more than expected and there is much to suggest that the fast increase will continue in early 2005. Despite last year’s robust productivity growth the number of employed fell for the second consecutive year. The fact that firms were able to boost output so sharply without hiring new staff was due to a rise in both productivity and average working time. It is reasonable to believe, though, that a continuation of strong GDP growth will result in higher employment during the forecast period. Different indicators from the labour market also suggest that a turnaround is on the way. For example, the number of temporary employees has risen since summer 2004 and the number of new job vacancies reported to Swedish employment offices rose in annual terms in the period November-January after having dropped for almost two years in a row. There is reason to expect average productivity growth in the economy to decrease somewhat as the economic upswing continues. Nevertheless, the Riksbank’s assessment remains that there has been a lasting increase in the rate of productivity growth, and the Bank’s forecasts for the coming years are therefore relatively high in a longer historical perspective.

Lars Heikensten: Introduction on monetary policy Speech by Mr Lars Heikensten, Governor of the Sveriges Riksbank, to the Riksdag Committee on Finance, Stockholm, 15 March 2005. *  *  *  Allow me as usual to begin by thanking you for your invitation. I think it goes without saying that these hearings are a highly valuable feature of the open discussion of monetary policy that we are all keen to safeguard. It is also my hope that the hearings can help spread knowledge about monetary policy issues to a wider audience, especially since they are now broadcast live on television. As is customary at the first hearing of the year I intend to begin by looking back on developments last year. As we all know, inflation turned out sharply lower than the Riksbank’s target in 2004. When that happens it is natural that a debate on monetary policy should arise in the public domain. It is hardly an exaggeration to say that the discussions in the past year have been unusually lively. I commented on the debate in detail when I was here in October, but there may be reason to touch upon it again today. Subsequently I intend to present our current assessment of the inflation outlook and explain the interest rate decision we made yesterday, after which I will round off with some general reflections on Swedish monetary policy and the conditions under which it operates.
Such approaches were used for more than 80 per cent of the relevant banking assets at 1 January 2008. I would also like to point out that the impact of Basel II on credit institutions’ capital goes beyond the capital requirement calculation stipulated in Pillar 1 (even though it provides more comprehensive coverage than Basel I of new risks, such as securitisation activities). Regarding Pillar 2, the new regulations call for major additional arrangements to refine banks’ risk management and planning for capital cushions. This could lead to additional capital requirements, or other appropriate measures to enhance bank stability by considering risks that are not dealt with or are inadequately dealt with under Pillar 1. By the end of the year, this approach should lead to individual ratios for each institution that the Commission Bancaire sets on the basis of structured dialogue with each institution. BIS Review 82/2008  3  We have also undertaken a series of major actions that are directly in line with the general framework of the recommendations made by the Financial Stability Forum. Many spheres of action have been defined, but I would like to speak about three that I think are priorities, starting with transparency and valuation, followed by adapting the capital requirements set by Basel II for certain instruments, and finally, liquidity risk. First of all, enhancing transparency and financial disclosure was quickly identified as one of the key requirements for ending the crisis.

The materialisation of certain risks, the return of volatility on financial markets and uncertainty about the economic outlook have meant that major banks need to make a special effort in three key areas: i) maintaining adequate capital ratios to cushion them from further shocks, which may still occur, ii) strengthening their risk management systems and processes, and iii) pricing credit and liquidity risks appropriately. To explain these developments, I would like to speak to you briefly about the following points. 1. First of all, the French banking system provided proof of its resilience in the face of financial turmoil in 2007. 2. The current economic situation calls for vigilance nonetheless, since banks must be ready to cope with new risks that may occur at any time. 3. Finally, as crisis conditions persist, I should like to talk about the main thrusts of the supervisory authorities’ actions. 1. The French banking system provided proof of its resilience in the face of financial turmoil in 2007  After posting good performances since 2003, the French banking system was hit by the fall-out from the subprime crisis starting in mid 2007, as were the banking systems in the other leading developed countries. This led to an extended period of strong turbulence. The impact of the crisis on banks’ earnings first shows up in the third quarter financial statements and then more clearly in the fourth-quarter statements.
Sources: Statistics Sweden and the Riksbank  Figure 4. CPI inflation deviates significantly and for a long time from the inflation target  Note: The CPIF is the CPI with a fixed mortgage rate. Sources: Thomson Reuters and the Riksbank  12  BIS central bankers’ speeches

Another important element of the Basel reform package is the introduction of a range of measures designed to mitigate the inherent pro-cyclicality of the financial system. In this context, mechanisms that enhance prudent and forward-looking provisioning of banks as well as the building up of sufficient capital buffers in years of economic expansion that can be drawn down at times of stress, are all under consideration. Overall, these measures aim at ensuring that the financial system functions as an absorber, rather than an amplifier of shocks, thus smoothing the volatility of the financial and real economic cycles. In setting up a more forward-looking provisioning framework, the Basel Committee works closely together with the accounting standard setters with a view to developing a sound operational framework for expected loss provisioning. In this context, let me mention as very important the collaborative efforts under way between the Basel Committee and the IASB to develop a revised expected loss model that proves operational. Concerning measures on capital buffers, the Basel Committee set forth a proposal on a capital conservation buffer that would establish certain restrictions for undercapitalised banks with regard to the distribution of earnings in the form of dividends, share buy backs and bonuses. In addition, the introduction of a counter-cyclical buffering mechanism is also considered. It would require banks to build up additional capital buffers when excessive credit growth is identified in the economy. The last topic I want to pay some attention to is the role of central banks in financial stability.
This is, to say the least, a stretch. It’s not simply that it’s early days, though that’s certainty the case. (We haven’t even begun to talk about the terms of EU withdrawal as yet, let alone those of any new arrangements.) It’s also that many economic indicators are in general very noisy, even at the best of times. Retail sales, for example, are estimated to have fallen by 0.2% between July and August. Is this meaningful? Not really. The index is extremely volatile – the average monthly change in retail sales volumes is over a percentage point – and poorly correlated with quarterly GDP, even with consumption growth specifically. Looking at a broad range of indicators, there’s certainly nothing I can see to disturb the MPC’s view in August that consumer spending will be relatively unperturbed by the referendum result, and that it will continue to grow in line with household income. (Real household income growth is itself likely to decline slightly, as the benefit of falling commodity prices fades, but that’s a separate effect, one that would’ve occurred whatever the result of the referendum.) Business investment we expect to be more affected, for the reasons I’ve gone through today. But this too is a volatile series, one that’s also subject to significant revision: almost half the mature and early estimates of quarterly business investment growth actually have different signs. So if an early estimate points to a very large move, or if you see a trend over several quarters, it’s worth paying attention to.

-5 Aug IR May IR Business investment (LHS) UK uncertainty indicator (RHS)  -2  10 0  1  -10 -20 1985 1990 1995 2000 2005 2010 2015 Source: ONS and Bank of England calculations  4  Source: ONS and Bank of England calculations  1  I’ve excluded the World War periods because investment growth was so volatile it would have dominated the graph. During World War II investment fell almost to nothing. In 1945 this remained quite low, so in 1946 its growth rate jumped to 1,894%! 3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  One obvious reason for the volatility of investment is the natural gearing in such decisions. The flow of 2  investment spending is much smaller than the existing stock of capital . So small changes in the second can require big moves in the first. Suppose, for example, you regularly spend a steady but relatively small amount on repairs and maintenance for your house – something that counts as investment – and then decide, in one particular year, that you want to build an extension. This will have a much bigger proportionate impact on the flow of your capital spending than on the size of the building (the “capital stock”). It will also mean your investment spending is far more volatile, from one year to the next, than your consumption. Similarly, small shifts in a firm’s desired capital stock require much bigger proportionate changes in investment.
Following this process, the Commission bancaire will take a formal decision as to whether or not to authorise the institutions in question to adopt the advanced approaches of Basel II on 1 January 2008. For institutions with foreign entities, this authorisation is granted, where appropriate, following an exchange of information with the host supervisors, i.e. where the institutions’ subsidiaries are established. While many counties, such as France, have entered into the effective implementation phase of Basel II, the recent financial turmoil has once again drawn attention to this framework, leading some observers to call into question its overall rationale. This turmoil has new characteristics as it is a credit crisis in a market environment with particular implications concerning contagion channels. Risk transfer operations, in particular securitisation, and the interaction between funding liquidity and market liquidity risks have played new or at any rate greater roles than before. I am nevertheless convinced that the reform of the capital adequacy ratio rightly remains a crucial element in the regulatory response to the problems facing us today. I would now like to explain why I am convinced of this. 2. The current financial turmoil confirms the need to concretely implement Basel II. This turmoil may very legitimately raise questions about several of the major provisions of Basel II, such as the use of rating agencies or the internal approaches developed by banks to assess credit risk.

In a more general way, it seems useful that supervisors should continue their analysis of the ways in which banks take account of the specific features of certain financial assets whose risk profile may be higher than that of the regulatory asset classes defined in Basel II;  –  We need also to deal better with the issue – crucial for some assets such as housing loans and specialised financing – of the correlation between probabilities of default (PD) and loss given default (LGD). This may be quite  4  BIS Review 11/2008  variable depending on the characteristics of housing loans in different countries. More generally, we need to analyse in greater depth the ways in which banks take into account the guarantees and collateral used and especially the correlation between the risk associated with the hedged instrument and that related to the collateral. This is all the more important given that Basel II increases very substantially the range of collateral eligible for prudential recognition. –  Lastly, it is important to improve the quality of stress tests relating to credit risk – including concentration risk – by including in them possible chain reactions and spillovers on different markets. The way in which the results of these stress tests are factored into risk management and assessment systems as well as, where appropriate, into the level of economic or regulatory capital required must also be closely examined, both by banks and the supervisory authorities.
But was the Concordat based on a false premiss: that the division of supervisory-labour during peacetime can carry smoothly over to the only period that really matters, distress? Because, as it happens, neither standard resolution regimes for commercial banks nor any super-SRR of the kind I have just outlined for going-concern restructurings could be applied easily to the cross-border activities of LCFIs. SRR tools cannot automatically be applied extraterritorially. It seems to me that policymakers need to face up to, and decide whether or not to fix, the really big issues about how insolvency and resolution laws are applied to internationally active financial companies. BIS Review 33/2010  3  Broadly speaking, countries’ laws apply either territorial principles to international insolvencies, consistent with separate procedures for each of a bank’s entities in different jurisdictions (so-called “separate-entity resolution”); or universal principles, consistent with a single procedure applying to the resolution of an international bank and its branches abroad, wherever they are located (“single-entity resolution”). I believe that top-level policymakers have to choose what kind of regime they want. This issue needs to be elevated above the level of middle-ranking technocrats where, through no great fault of their own, it has wallowed for too long. The issues were articulated as long as 20 years ago, following BCCI’s failure. 2 Nothing much has been done globally. So in the second half of my remarks today, I just want to sketch why this problem arises.

According to the United Nation Office on Drugs and Crime (UNODC), that translated to 800 billion to 2 trillion US dollars in current GDP. UNODC acknowledged that the margin between those figures is huge but we will agree that even the lower estimate underlines the seriousness of the problem. Money laundering is directly linked with crimes as crimes are largely motivated by money. In Malaysia, for the period between 2011 and 2012 alone, total amount investigated for serious crimes by our law enforcement authorities stood at RM13.1 billion. This is the amount that has the potential to be laundered through our system. We recognize that the actual extent of money laundering is difficult to measure. Certain type of crime may not be even reported, let alone investigated. For example, in the case of corruption, if both the giver and taker are willing giver and willing taker, the case will not be reported unless there is report from third party. It also acknowledged by the international convention, that for every 10 crimes committed, only one will get reported. Crimes and money laundering jeopardized socio-economic development of the country Crimes and money laundering would jeopardize socio-economic development our country. Serious crimes such as drug trafficking, corruption, tax evasion are intrinsically damaging to the country as they can weaken the economy. Not taking sufficient enforcement measures on the proceeds of crimes will perpetuate more crimes in the country as the benefits from the proceeds would incentivize perpetration of more and bigger crimes.
It is true that the opinions on the optimal level and even on the relevance of this factor for successfully joining a currency union are quite diverse. However, to attain a certain degree of per capita income convergence before switching to the euro is essential, as a large convergence gap may complicate business cycle management in the absence of independent monetary policy. But even the countries that are already euro area members should continue to increase their level of real convergence. In my opinion, the direction of the real convergence process and its sustainability and smoothness are just as important as its degree. Romania has certainly come a long way in terms of economic convergence, a process whose inception is tied to the prospects of EU membership, witnessing a significant increase in per capita GDP as a share of the euro area average (based on PPS), from 31.7 percent in 2005 to 58.6 percent in 2017. Peer countries recorded a similar trend: Bulgaria went from about 33 to 47 percent, while the Czech Republic, Hungary and Poland, which started from a more advanced level, added 9 to 20 percentage points to the same indicator during 2005–2017. However, this process is still far from completion in these non-euro New Member States. A smooth convergence path requires a combination of prudent macroeconomic policies (be they monetary, fiscal or macroprudential), even though in practice it is difficult to build support for such policies.

By contrast, Romania pursues both a floating exchange rate and a direct inflation targeting strategy, the same as Hungary, Poland and the Czech Republic and, therefore, the approach is different, the changeover to the euro being more complex in this context. This is by no means to say that Romania is sceptical about euro adoption, but merely that it needs a comprehensive view, meant to ensure an adequate timing of this moment and a successful entry into the euro area. While we are on the subject, it cannot be overlooked either that the New Member States having adopted the euro – Latvia, Lithuania, Estonia, Slovakia, Slovenia – are relatively small countries, with a different level of real convergence. Referring to countries that are currently in the process of adopting the euro, I myself am among those who stress the need for sustainable convergence, being aware that, in order to reap the benefits of euro area accession, several essential prerequisites have to be cumulatively met. The fact that nominal convergence criteria need to be fulfilled in a lasting – not accidental, forced or temporary – manner is just one aspect. Actually, the durability of convergence has been set forth in the Maastricht Treaty itself (“high degree of sustainable convergence” is the exact wording), but this “detail” has been taken too lightly for a while. Moreover, now it is obvious for everybody that real convergence is also essential for the sustainability of the entire process of euro adoption.