samchain/econo-pairs-v1 huggingface dataset:
6 Although there are certain dilemmas regarding its importance, most estimates show that the contribution of this effect ranges between 1 and 3  3  M. Morgese Borys, E.K. Polgar and A. Zlate, "Real Convergence in Central, Eastern and South-eastern Europe", Background paper prepared for the Economic Conference on Central, Eastern and South-eastern Europe, 1-2 October 2007, European Central Bank, Frankfurt am Main. 4  Source: EBRD Transition Report 2007: November update. 5  Source: Eurostat, NBRM calculations. 6  Jane Bogoev, Sultanija Bojceva Terzijan, Balázs Égert, Magdalena Petrovska, "Real exchange rate dynamics in Macedonia: Old wisdoms and new insights", http://www.economicsejournal.org/economics/discussionpapers. 2  BIS Review 74/2008  percentage points of CPI inflation. Therefore, for countries with a fixed exchange rate regime, such as almost all transition countries had in the beginning and quite a few of them now, the higher inflation is reflected directly into real effective exchange rate appreciation. On the other hand, countries with flexible exchange rate regimes also face their share of difficulties. Since they allow their currencies to fluctuate (and usually try to target inflation), their productivity growth is reflected first in higher nominal exchange rate, and consequently in real effective exchange rate appreciation as well. Besides the Balassa-Samuelson as a supply side effect, there were also factors on the demand side which contributed to higher inflation in these countries during the transition process. As productivity and income grow, people start spending relatively more on nontradables and services, which are usually considered more luxurious and are therefore more expensive.

Otherwise you might rationally expect to end up among the small minority that does not expand and at the same time still have the tighter monetary policy that results from everyone else expanding. This is the classic “prisoner’s dilemma” from game theory. The conclusion is that it is necessary to have rules for fiscal policy that limit deficits and debt when monetary policy is united and fiscal policy divided, and that these rules need to be followed in a credible fashion. But, in addition, the conclusion is also that the temptation to over-expand is as strong during an upturn as during a downturn. In fact this is what we have seen in the euro area during the heyday of the late 1990s and the beginning of the 21st century – a much too expansionary fiscal stance in some euro area countries, especially in good times, which led to tighter monetary policy by the ECB and thus an incentive for others to further weaken fiscal discipline. When the downturn eventually came, the euro area entered this phase with large deficits instead of surpluses. What the Pact then required, a 180-degree turnaround in fiscal policy to a tighter stance, reinforced the downturn and was considered by some as stupid. In fact it was the lack of savings  BIS Review 88/2006  1  during the boom that was stupid. Thus, rules would be needed not only for a maximum deficit in a downturn, but equally some forceful rule for fiscal rectitude in good times.
To this end, the Bank of Zambia will ensure that the Committee that has been spearheading the development of these guidelines become a permanent one and meet every so often to make the necessary changes in an inclusive manner. Accordingly, you are all urged to forward any contributions you wish to make on an ongoing basis. Ladies and gentlemen, allow me now to welcome and thank Mr Mervin King for graciously agreeing to officially launch the guidelines. Mr. King is internationally renowned for his work on corporate governance, and in particular for his work on the King Committee of South Africa which issued its first report in 1994. The King Report, along with the Cadbury Report of the United Kingdom and the Sarbanes-Oxley Act of the United States have become key references on the subject and it is for this reason that we feel both proud and honoured to have Mr. King with us today. BIS Review 119/2006  1  It is now my honour and privilege to call upon Mr. King to launch the Corporate Governance Guidelines. Mr. King!

We—the central bankers, credit rating agencies, and everyone in this room—must continue to be vigilant. We must maintain good buffers and build immunity. Despite many immediate challenges ahead, we also need to look at our long-term goals. Let me end by talking about something I like to do when I have some free time: hiking. There are two types of hiker. The first likes to admire the scenery, birds, trees, and the majestic mountain range far beyond, while the second only focuses on the path in front. The first inevitably trip on rocks or fallen branches, and the other sometimes looks up to find themselves lost. We cannot complete our journey only looking up or only looking down, and we need to pay as much attention to the short-term risks as we do to our long-term aspiration. I wish you all a fruitful conference this morning. Thank you very much. 6
Over time, cyclical fluctuations in unemployment have been small in relation to the increase in structural and frictional unemployment and growth in the number of disability pensioners and persons on early retirement. It is important to preserve and perhaps improve our flexible system of wage formation. Pension schemes and the application of social security rules should also be changed to provide better incentives and opportunities to seek employment. Legislation and rules governing the labour market can also be better designed to promote production and employment. 5  Source:Kjell Gunnar Salvanes: “Omstilling og strukturelle endringer i det norske arbeidsmarkedet” (Adaptation and structural changes in the Norwegian labour market). Lecture at a conference arranged by the Norwegian School of Economics and Business Administration, the Norwegian Shipowners’ Association and the Foundation for Research in Economics and Business Administration in Oslo on 8 October 2004. 8  BIS Review 10/2005  Conclusion Before I conclude, let us return to the period surrounding the dissolution of the union with Sweden in 1905. As mentioned, the dissolution did not have any implications for monetary policy in Norway. However, a Swedish economist of that period is in some ways present in today’s monetary policy – in both Norway and Sweden. Knut Wicksell was professor of economics at the University of Lund. When the Scandinavian currency union lost its significance in 1914, he proposed the establishment of a Scandinavian central bank. Its objective would be price stability. Once inflation targeting became the framework for monetary policy in many countries, Wicksell’s works experienced a renaissance.

6  Knut Wicksell (1907): “The Influence of the Rate of Interest on Prices”, Economic Journal, XVII (1907), pages 213-220. BIS Review 10/2005  9
As I have already mentioned, since the full revision of the NBA in 2004, additional bond categories such as corporate bonds and the bonds of foreign authorities, as well as equities, have been available. The diversification effect of equities versus government bonds can be seen in slide 4. For this chart we divided up the distribution of all daily returns on the US S&P 500 stock market index since 1999 into ten equally large groups or deciles. Then we ordered the deciles according to size of returns. The decile with the worst returns is on the left-hand side and that with the best returns is on the right. Subsequently, we assigned the associated US government bond returns to these deciles. As you see, there was a good diversification effect between equities and government bonds. This result is not hard to understand intuitively. During the cyclical upswing, when interest rates are increasing, prices of government bonds come under pressure, while equity prices benefit from the improvement in the economy and the better profit outlook for companies. Last year, this negative correlation was very clear and the diversification effect between equities and government bonds was particularly strong. However, these interrelationships apply for returns in local currency, while for us, what is critical is – ultimately – the return in Swiss francs. Here the situation looks somewhat different. This is because equity prices often correlate negatively with the external value of the Swiss franc. You can see this relationship in slide 5.

I suspect that societal discourse in Iceland has seldom been as destructive as it was then. I was born in 1970, and I remember well how inflation, the labour market, and the exchange rate dominated the radio and newspapers. I thought a lot about this inflation boogeyman that everyone was always talking about but no one could control. Actually, I was lucky enough to have price-indexed income: I owned two sheep - one multicoloured and one black. And some of the many agricultural pricing committees calculated the present value of the lambs and their wool, which I deposited to the Stykkishólmur co-op in line with inflation each year. On the other hand, money kept in banks and savings banks burned to a crisp under the white heat of negative real interest rates. At that time, interest rates, including Central Bank rates and commercial bank rates, were in principle set by political leaders. This led to real interest rates that were negative by 10 - 20% for quite some time. By 1979, negative real rates had scorched Icelanders' savings to the point where banking system deposits had shrunk 30 - 40% in real terms since the start of the decade. As a result, banks and savings banks had steadily less money to lend. Iceland's key economic sectors were in a state of continuous financial distress. Residential mortgages were in short supply. But perhaps it is incorrect to refer to "burning up" in this context.
Macroprudential policy affects the resilience of the financial system, but one (more or less pronounced) effect of this is also that lending rates are affected, which is of consequence to the trade-off between price stability and financial  3  It should also be mentioned that macroprudential supervision is not the only change to better prevent future crises. Many of the regulatory deficiencies prevailing before the crisis are being addressed by the new capital and liquidity regulations of the Basel III accord. Work on improving the regulations is, however, far from complete and intense efforts are under way in various international forums. 4  BIS central bankers’ speeches  stability. To highlight this in more detail, I will provide a general picture of how I view macroprudential policy. As a starting point, I will take the interest rate which households and companies pay for loans ( itlending ). Put rather simply, this can be defined as the central bank’s policy rate ሺ݅௧ ሻ plus an interest rate margin (  t ):  itlending  it   t . The interest rate margin depends on the banks’ compensation for administrative expenses and capital and funding costs, risk premiums and the banks’ profit margin. Credit terms such as the loan-to-value ratio and amortisation requirements are not directly visible in the interest rate encountered by borrowers, but in order to illustrate their effect at an aggregate level, they can be restated into interest rate terms.

In general, central banks do not have targets either for house prices or household debt. A rapid surge in house prices or rising lending may, however, signal an imminent financial crisis which could affect future inflation and resource utilisation. Hence, under certain circumstances, also taking account of house prices and household indebtedness in monetary policy decisions is necessary. The extent to which this should be done is, of course, a matter of judgement affected by several factors. For instance, it depends on the other variables currently being taken into account, and the shocks expected ahead. The housing market is also an important part of the monetary policy transmission mechanism. The house prices thus also contribute important information about which shocks are driving the economic development. On the whole, I do not believe that the flexible inflation target policy conducted by the Riksbank since the mid-1990s, with price stability as the overriding target, needs changing. However, monetary policy must to a greater extent lean against the wind and take greater account of financial stability. Macroprudential policy provides financial stability policy with a new focus The emergence of macroprudential policy as a new policy area involves a far-reaching change in the preventive work of financial stability policy.3 Macroprudential policy is about limiting systemic risks from a systemic perspective. It is about analysing the links between the various agents in the financial system and the relationship over time between the financial system and the macro economy.
We at the Riksbank has also used one such model to better understand the interplay between the two policy areas – mainly because macroprudential policy could have effects on economic activity that monetary policy may need to take into account.10 The conclusion from this exercise so far is that there are no easy answers and that the benefits of coordination may vary, depending on which shocks are driving the economy and making the authorities take action. How have the roles been allocated in reality? So how have different countries in reality chosen to organise monetary policy and macroprudential policy? As usual, it is difficult to draw straight lines between theory and reality. One country that comes fairly close to model A with regard to coordination is the United Kingdom, where the Bank of England has been given responsibility for macroprudential policy. The decisions on monetary policy and macroprudential policy are taken by two different committees in the bank, the Monetary Policy Committee and the Financial Policy Committee, which is more in line with model B, but there is nevertheless an explicit aim to coordinate, for instance, in the way the committees are composed.11 In Sweden we have chosen a solution that in institutional terms is closer to B, in the sense that Finansinspektionen has been given the main responsibility for macroprudential policy tools. Now, I do not believe that the differences in the practical solutions chosen in different countries should be exaggerated.

In any case, I believe that the financial globalisation and the way it affects the conditions for monetary policy, including coordination with macroprudential policy, is a question that will continue to be discussed intensively in coming years. As an important problem is that exaggerated credit growth can arise in the countries to which capital flows, financial stability can hopefully be guaranteed by the frameworks for macroprudential policy that are now being built up.32 We will see how well these frameworks can resist the global forces in the “learning by doing” process we are facing in the macroprudential policy area. A more complicated world after the crisis Let me try to summarise. The fact that I have chosen cooperation as something of a theme is because, as I said initially, our world in the wake of the financial crisis appears more complicated than it was before – or at least more complicated than we thought it was. I think it has become more evident that monetary policy in individual countries is dependent on both what happens in other policy areas and on monetary policy in other countries. Of course, there has always been a need to get different policy areas to interact and support one another, and nor is it anything new that there are links between the monetary policies conducted in different countries. But my feeling is nevertheless that the financial crisis has in a way brought these relationships to a head.
The prerequisite for this confidence is price stability, which is the responsibility of the Eurosystem (the ECB and the 19 national central banks); we have successfully achieved this primary mission. In France, the inflation rate has more than halved: 1.4% per year on average between 2002 and 2021, compared to 3.4% between 1982 and 2001. This is not just a statistic, it is a very concrete reality, measurable by a few examples. The price of a kilo of bread was EUR 2.7 in December 2001 and EUR 3.6 in November 2021, i.e. an annual increase of 1.4%. The price of pasta has increased at a much slower rate, with an average increase of 0.1% per year. The euro has therefore helped to protect the purchasing power of French citizens, which has increased by 25% over the last twenty years. The temporary “inflation hump” that we have been seeing for the past few months, associated with an unprecedented economic rebound, does not change this observation, and I will return to this later. A forward-looking euro means new banknotes after 2024, with a new design, and even more secure – there are now only 17 counterfeits per million banknotes, making the euro one of the most secure currencies in the world. It is also a digital euro. The investigation phase for a “digital retail euro” was launched on 1 October last year, for a period of two years.

But withdrawing from internationally-agreed minimum requirements which apply to globally-active entities – such as the FRTB or the NSFR standards, I want to insist on the Trading Book – would be completely different and a source of great concern for all. Any temptation of competitive deregulation would be a lose-lose game which would increase the risks of a new financial crisis and therefore weigh on economic growth. International cooperation on financial sector regulation is our common good, and, fortunately, the Hamburg G20 Summit reaffirmed it. The second requirement is to carefully assess the impact of these new financial regulations. The Banque de France has supported the work of the FSB from its inception, notably to build the “policy evaluation framework” to assess the effects of G20 reforms. This was endorsed by the Leaders of the G20 at the Hamburg Summit. This is a key part of the credibility of global financial reforms. Ex-post evaluations will make it possible to assess whether G20 financial regulatory reforms have actually achieved their intended outcomes. Going forward, these evaluations are meant to provide a basis for the possible fine-tuning of post-crisis regulatory reforms, where relevant. What matters now is to make sure that this framework is used in a timely manner. To this end, a tight schedule should be defined by the end of the year, so that the first evaluations can be carried out in 2018. ** Ladies and Gentlemen, let me conclude by a word on the Paris ecosystem in a post-Brexit Europe.
For example, work done here at Lloyd’s of London estimated that the 20cm rise in sea-level at the tip of Manhattan since the 1950s, when all other factors are held constant, increased insured losses from Superstorm Sandy by 30% in New York alone. 15 Beyond these direct costs, there is an upward trend in losses that arise indirectly through second-order events like the disruption of global supply chains. Insurers are therefore amongst those with the greatest incentives to understand and tackle climate change in the short term. Your motives are sharpened by commercial concern as capitalists and by moral considerations as global citizens. And your response is at the cutting edge of the understanding and management of risks arising from climate change. Lloyd’s underwriters were the first to use storm records to mesh natural science with finance in order to analyse changing weather patterns. Events like Hurricanes Andrew, Katrina and Ike have helped advance catastrophe risk modelling and provisioning. 16 Today Lloyd’s underwriters are required to consider climate change explicitly in their business plans and underwriting models. Your genius has been to recognise that past is not prologue and that the catastrophic norms of the future can be seen in the tail risks of today. For example, by holding capital at a one in 200 year risk appetite, UK insurers withstood the events of 2011, one of the worst years on record for insurance losses. Your models were validated, claims were paid, and solvency was maintained.

Participants in the Lloyd’s market know all too well that what appear to be low probability risks can evolve into large and unforeseen costs over a longer timescale. Claims on third-party liability insurance – in classes like public liability, directors’ and officers’ and professional indemnity - could be brought if those who have suffered losses show that insured parties have failed to mitigate risks to the climate; failed to account for the damage they cause to the environment; or failed to comply with regulations. 17  Discussions on correlation are not new. For example, a current issue is the extent to which European windstorms occur in clusters, such as windstorms Daria, Vivian, Wiebke and Herta in 1990 and Lothar, Martin, and Anatol in 1999. 18  See Standard and Poor’s – “Climate Change Could Sting Reinsurers That Underestimate Its Impact” (2014). 19  In 1992 after Hurricanes Andrew and Iniki hit the US, the price of reinsuring weather risks spiked and several carriers left the market, leading to a rise of up to 40% in premiums in some parts of Florida. A series of hurricanes affecting the Bahamas has prompted several insurers to withdraw flood cover for low-lying areas. 6  BIS central bankers’ speeches  Asbestos alone is expected to cost insurers $ on a net ultimate claims basis in the United States – equivalent to almost three Superstorm Sandy-sized loss events.