samchain/econo-pairs-v1 huggingface dataset:
An economic turnaround has occurred, with a soft landing after the long period of high cost inflation in Norway and a low level of activity in other countries. But inflation is too low. As mentioned, there are three main factors that have contributed to this. First, the global downturn had considerable implications for the impact of interest-rate setting in Norway. A strong krone contributed to the decline in inflation. The krone has now returned to its previous level so that the effect will be reversed. Second, low inflation in other countries and rapid changes in the international division of labour have resulted in a fall in prices for imported goods and services, even when measured in terms of what Norwegian importers pay in foreign currency. Third, intensified domestic competition also appears to have exerted downward pressure on prices. As a result of both changes in the international division of labour and increased domestic competition, there is idle labour and available real capital in Norway. We cannot rule out that adjustments will be made over a period of time and that these adjustments will encompass a large portion of the domestic economy. Thus, it is possible that the level of output that is consistent with stable inflation will increase. Inflation will remain low in 2004. However, the easing of monetary policy will gradually push up inflation. As mentioned, it may take some time before interest rates in other countries are increased to a considerable extent.

Growth in Continental Europe, which is highly reliant on impetus from exports, may weaken markedly if the dollar continues to fall. Chart 15. Mainland GDP and employment Annual growth. Per cent 6  6 GDP  4  4  2  2  0  0 Employment  -2  -2 1990  1992  1994  1996  1998  2000  2002  2004  Sources: Statistics Norway and Norges Bank  BIS Review 11/2004  11  Norway, like other countries, experienced a period of strong expansion in the 1990s. The expansion in Norway lasted considerably longer than in other countries. In 1998, the economy shifted from an upturn with high growth rates to an expansion with lower growth but low unemployment, labour shortages in many sectors and strong growth in labour costs. Wage developments culminated in the spring of 2002 and the expansion was reversed in the second half of the year. Growth came to a halt and employment fell. A number of factors triggered this development. Higher wage costs weakened the purchasing power of public entities. Global stagnation had a dampening impact on Norwegian exports. In Norway, the interest rate was kept high after the wage settlement and a persistent, unexpected low level of interest rates abroad resulted in a strong krone. The sharp rise in electricity prices last winter also affected the domestic economy. Chart 16.
Key policy rate is low because inflation is low and because the downturn abroad and a strong krone are dragging down on growth in some sectors in Norway. Very low interest rates abroad and high premiums in money and credit markets reinforce this picture. There are unusually wide differences between various interest rates, reflecting the high level of money  4  BIS central bankers’ speeches  market and credit premiums. Many households are paying up to 4 percent on housing loans and interest rates on corporate loans range between 5 and 6 percent. When setting interest rates, the Bank does not give weight exclusively to bringing inflation back to target. Weight is also given to the effects of the interest rate on output and employment. At the same time, weight is given to the risk that a prolonged period of low interest rates can lead to elevated risk-taking and excessive debt accumulation in the household and business sector. Such imbalances may have spillover effects further ahead, with substantial effects on output and employment. In the March 2012 Monetary Policy Report, Norges Bank clarified how these considerations are expressed in the Bank’s response pattern. In that connection, the Bank adjusted the criteria to which it gives weight in interest rate forecasting. The key policy rate is set so that inflation is brought back to target. At the same time, inflation targeting is flexible, which means that the path for inflation should be weighed against developments in output and employments. Interest rate setting should also be robust.

The ECB operations during winter contributed to boosting liquidity and reducing risk premiums in the European banking system and in the sovereign debt market. 2  BIS central bankers’ speeches  Financial market turbulence has flared up again recently, with particular focus on the macroeconomic situation and budget developments in Spain and other countries in southern Europe. The political unrest in Greece and growing fears of a Greek government debt default have curbed risk appetite in the markets. Yields on Italian and Spanish government bond have increased, while US, UK and German government bond yields have fallen to historically low levels. International equity indices have declined, particularly in Europe. BIS central bankers’ speeches  3  Despite a prolonged downturn abroad and financial market turbulence, activity in the Norwegian economy is remains robust. Capacity utilisation has been close to normal over the past year. GDP for mainland Norway expanded by 2.4 per cent in 2011 according to preliminary figures. Prices for Norwegian export goods are favourable relative to import prices. The oil and construction industries are booming and both employment and the supply of labour are on the rise. Unemployment is low and fairly stable. At the same time, house prices are moving up and household debt is still rising faster than household income. On the other hand, some segments of the export industry are feeling the adverse effects of developments in Europe and a strong krone.
If the economy is exposed to disturbances that may lead to higher unemployment, inflation will normally decline and interest rates will be lowered. Flexible exchange rate In a small, open economy, the exchange rate is an important channel for monetary policy. The krone fluctuates. This is not surprising because other countries’ currencies also fluctuate. The krone exchange rate is the price of our currency measured in a foreign currency. Developments in other countries are just as important for the krone as developments in the Norwegian economy. Capital flows freely and flows can change rapidly. This can spill over to exchange rates and interest rates as well as output and employment. The chart shows the effective exchange rate for Norway and a number of other small countries with inflation targeting. Exchanges rate fluctuations are approximately the same for Norway, Sweden and Canada, whereas the krone exchange rate fluctuates less than the exchange rate for Australia and New Zealand. Therefore, the krone does not stand out as particularly unstable compared with other countries’ currencies. The forward exchange and options markets have expanded in recent years. A deeper market reduces transaction costs and it is easier to find counterparties. This has provided companies with greater scope for hedging against foreign exchange risk. The use of instruments that reduce the risks associated with a floating krone is also increasing in Norway. There is a cost involved for businesses in hedging against fluctuations in the krone.

The impact of the interest rate decline on private consumption is likely to be stronger this year than in 2003. It takes time for changes in Norges Bank’s key rate to feed through fully to interest rates for households. Norges Bank’s calculations show that if we look at 2003 and 2004 as a whole, it appears that the impact of interest rate changes will result in an overall reduction of about NOK 15bn in household net interest expenses before tax. However, due to the increase in household net debt, net interest expenses will fall much less than this. The impact of the interest rate decline is also conditioned by the expected duration of the low interest rate level. When the sight deposit rate was reduced last autumn, longer interest rates showed relatively little change. The interest rate reductions in December and January, combined with the decline in inflation, have had a stronger impact on long-term interest rates. This indicates that financial market participants expect interest rates to remain low for a longer period. The fall in the value of the krone over the past year has strengthened Norwegian business and industry. With lower wage growth in Norway and a pick-up global activity, the prospects for Norwegian manufacturing and the business sector are brighter now than they were 12-18 months ago. The business sector is, however, still feeling the effects of a sharp rise in labour costs over a period of several years.
Finally, there is the puzzling matter of long term interest rates; last year, as central banks raised their policy rates, long term nominal and real rates fell to levels not seen in 40 years (though of course, US rates have now ticked up a bit recently). At the same time, risk premia of all kinds – bond spreads and term premia – have been sharply compressed. This state of affairs has caused a great deal of head scratching, and nowhere more than in central banks. Plausible explanations for low risk free real rates include the possibility that there is a global savings glut. It is also argued that there has been an investment ‘strike’ almost everywhere except China and maybe the US, perhaps reflecting a persistent overhang from the East Asian crisis or the last IT cycle. These are speculative explanations, and it is not easy to discriminate between them. However, they all seem to point to a more or less prolonged period of low rates. More worryingly, compressed risk premia of all kinds may reflect a belief that the world is no longer such a risky place, a belief fostered by the period of low inflation that many economies have enjoyed in the past decade. Hopefully, low inflation is here to stay.

Oil supply is traditionally slow to respond to changing prices – lead times for developing new fields are often around 3-7 years; and there are constraints on refinery capacity which may influence petrol prices. This is bound to have implications for the UK and for our European markets. Over the past decade, we have benefited from the downward pressure on imported goods prices exerted directly and indirectly by low cost production in Asia. Even if these trends continue, as in principle they could for some time, it is becoming increasingly clear that consumers may also need to contend with upward price pressures as world energy markets adapt to meet the needs of emerging Asia. The second key area of risk is global imbalances. These pose risks to foreign exchange markets and to world activity. Higher oil prices have intensified the scale of the problem. Yet we seem no closer to a denouement – indeed, as the US current deficit topped 6% of GDP, the dollar has tended to strengthen. What does this mean for the UK? I find it extremely hard to predict how sterling’s effective rate would be affected, were there to be a major re rating of the dollar. But a resolution of global imbalances which was accompanied by global recession would represent a major challenge for us – one to which, I suspect, we are now less well placed to respond than we were in 2001.
William C Dudley: Title II resolution, a useful tool but not a panacea Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the 2013 Resolution Conference “Planning for the orderly resolution of a global systemically important bank”, Washington DC, 18 October 2013. *  *  *  The topic of how systemically important financial institutions (SIFIs) will be resolved is a very important subject. As we saw during the financial crisis, the failure of Lehman Brothers generated huge shocks across the global financial system that led to a deep global downturn. That is not an acceptable regime and I am very glad we are working hard to change it. I thank the organizers for giving me the opportunity to make some short remarks. Today, I’m going to take a somewhat broader view than some of the other speakers, focusing on two issues: •  Some outstanding questions about how the “single point of entry” strategy under the Title II resolution regime would work in practice. •  How the resolution regime fits within the broader supervisory agenda of ending “too big to fail” and making the financial system more resilient and robust. As always, what I have to say today reflects my own views and not necessarily those of the Federal Reserve System. The first point I’d make is that I very much endorse the single point of entry framework for resolution as proposed by the Federal Deposit Insurance Corporation (FDIC).

These plans should identify actionable options that the firm can take in response to financial weakness that will restore the confidence of the firm’s counterparties in the firm without the need for extraordinary official sector support. Firms must also have disciplined processes that analyze the root causes of their problems and identify longer-term strategies that will need to be employed as other recovery options to restore capital and liquidity are being executed. And firms must support the viability of their contingency and recovery plans by implementing the internal governance necessary to develop, test, update and implement them credibly. There is also more work that we, as supervisors, can do to reduce the probability of failure and to incent firm managers to act well before resolution becomes necessary. We need to do more to create incentives to force banks to act sooner to steer away from impending icebergs – cut capital distributions earlier, raise new capital faster, restructure businesses sooner, and restructure senior management and boards of directors more radically when the firm is not performing well. For example, one approach might be to implement a long-term debt requirement in a way that enhances market discipline. Another reform would be to reduce the incentives of large, complex firms to rely on shortterm wholesale funding to finance longer-term, illiquid assets. Among other benefits, reducing a firm’s susceptibility to sudden runs associated with short-term wholesale funding will lengthen the “runway” for management to implement the strategic actions that would restore the firm to health.
It was used to borrow a smaller sum in conjunction with the Riksbank’s swap agreement with Latvia. 14  In its recently concluded mission, the IMF concluded that the foreign currency reserve is sufficient to meet risks, but this assessment should be reviewed on an ongoing basis with reference to developments in the euro area. BIS central bankers’ speeches  13  the banks’ market funding in foreign currency could possibly get the banks to reduce this, thereby reducing the need for a large foreign currency reserve and thus fund the costs to society of the foreign currency reserve.15 However, such charges do not exist at present and the effects of any charges are not clear. Conclusion About a week ago, we published our first Financial Stability Report for the year. In this, we report that the Swedish banks’ resilience towards shocks has continued to improve over the last six months. However, in large parts of the world, the recovery from the financial crisis has proceeded slowly and the financial markets are still marked by great uncertainty. This uncertainty is primarily linked to the fiscal problems in Europe. The issues I have addressed today are not issues that have much to do with the current situation. Instead, they are a few opinions on how the regulations for the financial sector should be changed to reduce the risk of new financial crises and to reduce the negative consequences for Sweden if such crises should again arise internationally.

The crisis also showed how important it is that the two departments handling financial stability and monetary policy work closely together. The prevention and management of systemic risks requires both macroeconomic competence and knowledge of the financial system. Stress tests will continue to form a central part of our work. In the autumn of 2010, we carried out tests of the Swedish banks’ liquidity for the first time. These showed that the Swedish banks were exposed to greater liquidity risks than the European banks against which we compared them. The greatest problem for the Swedish banks during the financial crisis was not loan losses, of course, but a shortage of liquidity. The crisis has also shown that the Riksbank’s fundamental task as lender of last resort can no longer be limited to lending in kronor. Consequently, stress tests of liquidity need to be developed so that they also show what may happen if the banks are unable to obtain funding in foreign currency. We also need to think through how the Riksbank could achieve greater impact for its analyses and assessments. So far, we have primarily relied on what we usually call moral suasion, which is to say making an impact through careful analyses and strong arguments. But, despite the risks concerning developments in the Baltic that we drew attention to before the crisis, too little was done to prevent the Swedish banks’ rapid credit expansion in these countries.
(*) Starting in January 2014, the new annual indices with base 2013=100 are used, so they are not strictly comparable to previous data. Sources: Central Bank of Chile and National Statistics Institute (INE). 10  BIS central bankers’ speeches  Figure 5 GDP and domestic demand (annual change, percent) 18  18  12  12  6  6  0  0  -6  -6  -12  -12 09  10 GDP  11  12  Domestic demand  13  14  Final demand  Source: Central Bank of Chile. Figure 6 Current account (*) (percent of GDP) 6  6  4  4  2  2  0  0  -2  -2  -4  -4  -6  -6 08  14  (*) Accumulated in moving year. Source: Central Bank of Chile. BIS central bankers’ speeches  11  Figure 7 Demand indicators (annual change, percent) 60  21  40  17  20  13  0  9  -20  5  -40  1 11  12 New car sales Capital goods imports  13  14 Retail sales  (*) Quarterly moving average. Sources: National Car Association of Chile (ANAC), Central Bank of Chile and National Statistics Institute (INE).

Coordination between monetary and fiscal policy  An occasional criticism of the new arrangements is that they impede proper coordination of monetary and fiscal policy. Two main reasons are usually advanced. First, the monetary and fiscal authorities may have conflicting objectives which they are free to pursue. Second, even if they have the same objectives they may be uncertain of each other’s intentions. Neither concern is, I believe, well-founded. The first stems from a line of academic thinking which assumes that the central bank attaches more importance to the control of inflation than the Government, which in turn gives greater weight to output and employment. Hence when setting interest rates and fiscal policy, the two authorities could be pulling in opposite directions, and, realising this, might pull harder to offset the actions of the other, resulting in a distorted policy mix. Although such an outcome is possible in principle elsewhere, this problem does not arise in the UK. The reason is simple. The Chancellor sets the objectives for both fiscal and monetary policy. It is the Chancellor who sets the inflation target and then delegates the responsibility to achieving that to the Monetary Policy Committee. So no conflict arises. Nor are the two authorities unaware of what the other is doing. A Treasury representative attends meetings of the MPC, and one of his duties is to brief the Committee on fiscal policy developments. This may take the form of advance notice of the overall fiscal stance to be announced in the Budget.
Lars Nyberg: The Riksbank and the property market Speech by Mr Lars Nyberg, Deputy Governor of the Sveriges Riksbank, at a lunch meeting, arranged by Connect Skåne, Kristianstad, 6 November 2006. *  *  *  To begin with, I should like to thank you for the invitation to come here to Kristianstad to speak about developments in the property market. This is a subject that certainly engages people, not merely us economists but also people who are not usually interested in economics or what the Riksbank does. The main interest is probably due to a house purchase being the largest individual investment most of us make in our lives. The Riksbank’s interest in the property market is based on the two tasks we have been set by the Riksdag (the Swedish parliament). One is to ensure that inflation remains at two per cent a year, with a tolerated deviation interval of plus/minus one percentage point. The other task is to "promote a safe and efficient payment system”, as it says in the text of the law. We wish to avoid the type of catastrophe Sweden experienced during the bank crisis at the beginning of the 1990s and we usually call this safeguarding financial stability. As I shall discuss a little later, developments in the property market can be significant for both these tasks and this is the reason for our interest.

Although the housing market may have its peculiarities, it essentially functions like any other market – a high demand and small supply mean high prices. The mortgage market The significant changes in the mortgage market have also contributed to house prices rising so sharply. These changes are based in the credit deregulation that took place during the second half of the 1980s, but it is not until the last few years that they have really made an impact. The crisis at the beginning of the 1990s delayed developments here, too. One important change in the mortgage market is that competition has stiffened and that the mortgage institutions’ margins have been pressed down, which has cut mortgage interest rates more than the general fall in interest rates. Moreover, the mortgage institutions have become more flexible with regard to the degree of borrowing and now offer a broader spectrum of products. One change that I feel deserves a little extra attention is the fact that mortgage institutions have become less strict in their amortisation requirements. One might wonder why the amortisation periods have increased as much as they have and why fewer households are choosing to amortise. For new house owners with relatively ordinary incomes, it may seem meaningless to amortise SEK 1,000 a month on a loan of, for instance, SEK 1.5 million.