samchain/econo-pairs-v1 huggingface dataset:
International cooperation is indeed of great importance to supervisory and resolution authorities and deposit insurance systems (DISs).Globalisation has prompted us to decide and act jointly to address the financial crisis and to prevent new ones. We now know that a financial crisis cannot be resolved by countries and/or authorities acting independently. It is not only a matter for DISs but also for all other bodies involved in financial stability: central banks, supervisors, capital markets authorities, accounting standards setters, etc. The FSB  BIS central bankers’ speeches  1  has taken the lead in initiating reforms and in helping to implementing common principles at the local level. As regards deposit insurance, the International Association of Deposit Insurers was created in 2002 as a direct result of the early understanding of the importance of international discussion and practice-sharing between DISs. Progress made in this field has been tremendous. The momentum created by international authorities and standards-setters has actually been crucial International common standards are key because they embody common understanding and analysis. They are safeguards of the level playing field and of orderly problem solving. The Core Principles for Effective Deposit Insurance Systems drawn up by the IADI in cooperation with the BCBS, regularly updated and supplemented for instance by the guidance on ex-ante funding, are a perfect example in this respect.

Each of us constitute a vital link for building the proper international regulatory framework The presence of so many different institutions at this conference demonstrates the need and interest to talk and work together because we share a lot of similar concerns and goals concerning depositor protection and financial stability. We are united by a common goal: to strongly mitigate contagion and make liquidation operationally possible. Depositors must perceive the DIS as a well-funded and reliable partner able to satisfy their claims in a timely manner. But continuous efforts are required. I know for instance in France the permanent working relationship between the ACPR, the FGDR and the Treasury to make the French DIS ever more effective with regard to these goals. I am wholeheartedly convinced that working together, especially at the international level, is a key factor of success. BIS central bankers’ speeches  3
4  Immediate concerns and inherent vulnerabilities Against this prospect of net long-term benefits, and indeed if the NMS are to maximize the benefits of euro adoption, they will have to continue making substantial reforms to their economic, financial and social systems. While such changes are in themselves necessary to ensure a smooth adoption of the euro, they will continue to be endogenously engendered once these countries become members of the euro area. In the meantime, however, these reforms are posing major challenges to a number of NMS and are exposing vulnerabilities which, if not addressed, could threaten their successful participation in the euro area. In the course of this seminar first-hand accounts of such challenges, and of the policy responses to deal with them, will no doubt reveal the rich diversity of country situations within an enlarged EU. Some challenges, however, will be common to most new NMS. One such is the need to catch up in terms of per capita income levels with euro area countries. In several NMS this catching-up process is taking place in good part due to the relatively low wage levels and high rates of return on capital in these countries relative to euro area economies. These characteristics of the real sector are creating challenges from a nominal convergence viewpoint. Chief among them are the issues of real exchange rate appreciation and the need to cope with large, and potentially volatile capital inflows.

The orientation of economic policy in these areas will have to focus strongly, at the level of both national authorities and European institutions, on consistency, flexibility and credibility if we are to extract the maximum gains for all out of this next step in European integration. Long run net benefits of euro adoption In order to place this topic in its proper context it is first important to recall that the adoption of the euro is expected to produce significant net benefits for the NMS in the long run. A consistent body of literature points to the likelihood of substantial output growth arising out of increased external trade in countries forming currency unions. Recent studies suggest trade gains of between 6% and 15% from the creation of the euro after five years of its existence. 1 On the basis of these estimates, euro adoption could raise GDP by at least 1% to 2% over 20 years in the NMS. 2 These gains arise from the elimination of exchange rate volatility and risk, lower transaction costs, increased competition and price transparency, all of which lead to trade creation. Lower risk premia on borrowing costs and the stronger frameworks for policy discipline prevailing within the euro area are other potential sources of economic growth.
As a result, by the first quarter of 2022, inflation in the EU was already at its highest level since the creation of the monetary union. Lastly, in this unstable scenario in which supply and demand had yet to adjust, the outbreak of war in Ukraine fuelled further instability in the inflation outlook and hindered the economic recovery that was starting to take hold in early 2022. Europe is particularly exposed to the economic repercussions of the Russian invasion of Ukraine. First, the continent has close commercial ties with Ukraine, a supplier of primary goods such as grain, sunflower oil or corn. These products are widely used in the European agriculture, farming and food industries. Second, and most importantly, Russia continues to play a major role as an exporter of energy products to Europe (mainly oil and gas), and remains of key importance for some European countries. Russia is the euro area’s main supplier of natural gas and oil: in 2019, 36% of all of the natural gas consumed in the euro area came from Russia, as did 22% of all of the oil consumed. As a result of the war, the European Union has taken measures to sanction certain activities that could be used to finance Russia and, by extension, the invasion. In turn, Russia has restricted supplies of gas to Europe, and these are hard to replace in the short term. All these elements make up a cocktail that is hard to digest.

A combination of a deterioration in macroeconomic prospects together with tighter financing conditions will put pressure on the debt-servicing capacity of companies and households. Additionally, certain vulnerabilities in the residential real estate market can be seen in some countries on the back of buoyant house price and mortgage lending growth. I believe that the labour market will be one of the key elements that define the economic environment. Its robustness could partially offset the negative consequences of the energy and inflation shocks. In this context, credit institutions will need to ensure that their provisioning levels and capital planning take into account the most adverse scenarios. But what can we do when the downward scenario has not yet materialized and the non-performing ratios are still falling? I believe that capital models should include all adverse scenarios and should be frequently streamlined using the most recent data in order to consider the most up to date situation. The European banking sector is probably already fully aware of the challenges that the pandemic and the war have brought to the table. Nevertheless, as part of a supervisory authority, I must call for prudence. It is over a longer horizon (one or two years) that the negative impact on the ability of households and companies to meet their financial obligations is likely to emerge. These days, our financial sector is more robust as a result of all of the reforms promoted by the Basel Committee and implemented in the wake of the great financial crisis.
Our knowledge of the economic situation is not complete, and neither is our knowledge of how monetary policy affects inflation and the real economy, the so-called transmission mechanism. There is a considerable time lag before monetary policy measures have an impact on inflation, and the duration of this time lag also varies depending on the circumstances. This impact is normally gradual and becomes apparent over the course of a couple of years. As monetary policy works with a time lag, it is most effective if it is based on forecasts. In order to achieve an inflation rate of two per cent, it is therefore best to set the policy rate so that the inflation forecast a couple of years ahead corresponds to the inflation target. However, during the time it takes for changes in the interest rate to have a full impact on inflation the economy will be affected by new and unexpected shocks. The inflation outcome a couple of years ahead will therefore have been affected by events that could not be predicted when the monetary policy decisions were made. A direct comparison of outcomes and targets for inflation may therefore lead to the wrong conclusions. The inflation outcome may be in line with the target even if the monetary policy decisions were incorrect because the central bank was lucky and unexpected shocks nevertheless resulted in the right inflation outcome.

Assuming, however, that we nevertheless conclude that monetary policy has not been clearly inefficient in the sense that I described earlier, the next step is to focus on what combination of the stabilisation of inflation and the real economy the central bank actually selected or, in other words, which of all the possible points on the Taylor curve the central bank selected. There are many different efficient monetary policy alternatives to choose between every time a monetary policy decision is made. But did the central bank make a good choice? In the event of a conflict between stabilising inflation and stabilising the real economy, did the combination chosen by the central bank represent a reasonable balance between the two? Did the central bank attach reasonable importance to the stabilisation of the real economy in relation to the stabilisation of inflation? In the literature, as in the case of the forecast loss function I presented earlier, the constant that is the relative weight that the central bank gives to the stabilisation of the real economy in relation to the stabilisation of inflation is usually denoted by the Greek letter lambda, λ. In Figure 3, we can show the forecast loss function with the help of iso-loss curves for combinations of sums of squared inflation-gap and output-gap forecasts that generate equally large losses. Such iso-loss curves are in this case downward-sloping, straight lines with a slope of 1/λ, the reciprocal of lambda. Iso-loss lines closer to origin correspond to lower losses.
To be sure, progress has not been uniform across EMEs, and more work remains in some countries to further strengthen institutional structures. Vulnerabilities remain in several important EMEs, and some have been hit by a sharp adverse turn in their terms of trade due to the recent fall in global commodity prices. Still, the fundamental improvements I’ve cited leave many EMEs better positioned than in the past to weather those times in the cycle when the external environment turns more challenging. Second, during previous Fed tightening cycles EME economic performance has generally been good. During the last three U.S. tightening cycles, EME industrial production growth has been between 7½ and 10 percent over the 12-months from the start of Fed tightening, while EME export volumes have risen 10 to 15 percent. The likely explanation for this favorable record is that Fed tightening generally occurs during periods of strong U.S. economic performance. Recent research from the IMF bears out this hypothesis, finding that higher U.S. interest rates associated with stronger U.S. growth represent a net positive for EMEs. 1 Financial performance of EMEs has been more diverse across Fed policy cycles. The strongest contrast is between the tightening cycle that began in 2004, and the one beginning a decade earlier, in 1994. EME asset prices strengthened considerably during the 2004 cycle, but weakened considerably during the earlier cycle.

Anita Angelovska-Bezoska: Macedonia’s current macroeconomic landscape and main challenges ahead Speech by Ms Anita Angelovska-Bezoska, Vice-Governor of the National Bank of the Republic of Macedonia, at the economic and financial dialogue on the Economic Reforms Programs on Western Balkan and Turkey, Brussels, 12 May 2015. *  *  *  Dear Ministers, Dear representatives of the European Commission, European Central Bank and Eurostat, At the beginning, let me express our gratitude to the European Central Bank, European Commission and Eurostat for their assessment of our Economic Reforms Program for the period 2015–2017. Let me mention that we appreciate very much this dialogue with the EU institutions and the overall feedback on our policies that we have received during the process and we believe that it is highly beneficial regarding our preparedness for joining the EU. At this point, I would like to address several important issues related to the current macroeconomic landscape of the Macedonian economy, as well as the main challenges ahead. The growth momentum was kept in 2014, with the real GDP growth accelerating to 3.8% p.a. As the external environment is not sufficiently “growth-conducive”, the strong performance of the domestic economy is explained by country-specific factors. Firstly, it is a reflection of the positive fundamental shifts, with growing foreign investments, mainly in the tradable sector.
These percentage changes have then been weighed together using TCW weights to a percentage change in the TCW index compared with the value of the index at the date of the survey. 16  A classical study of this is Meese and Rogoff (1983). See also Cheung, Chinn and Pasqual (2005). 17  This is known as covered interest parity, and means that the forward rate in relation to the current exchange rate corresponds to the interest rate differential between the countries. The reasoning is as follows: If one exchanges kronor for dollars, invests in a US one-year bond and then in one year’s time exchanges them back to kronor according to the current forward rate, the investment contains no exchange rate risk. The yield is therefore the same as that given by investing in a Swedish one-year bond. Uncovered interest parity means that the interest rate differential corresponds to an equally large expected change in the exchange rate. In our example this means that one exchanges the money for kronor in one year’s time at the current exchange rate, which entails an exchange rate risk. 18  See, for example, Froot and Thaler (1990). 19  This phenomenon has been called the forward premium puzzle. BIS Review 3/2010  7  in the carry trade, for instance, in connection with the Asian crisis in 1997–98, when “high interest rate currencies” in Asia weakened drastically against the dollar and the yen, and the carry positions had to be settled quickly.

International comparisons as well as surveys and similar studies that have been carried out by external analysts in the media, for example, confirm that the Bank’s monetary policy communication has worked fairly well. However, this doesn’t mean – and I want to stress this – that there are no examples of episodes when our communication in my opinion could have been better. My conclusion is that the Bank’s policy in the past ten years has worked well. Nonetheless there is of course every reason to reflect on whether the analysis that we carry out and the framework that we follow in our monetary policy work could be improved. That is the aim of the rest of my speech. Some thoughts on how to develop the Riksbank’s monetary policy work Methodological aspects Let me begin by addressing an issue that is of a rather technical or methodological nature, but that, as we also shall see, has a number of further consequences: the choice of repo rate on which the inflation forecast is based. Since 1996 the Riksbank’s Inflation Reports have presented overall assessments of the economy and inflation that have served as a guide for policy. From the fourth Report in 1997 these have included numerical, relatively detailed forecasts. The published forecasts have consistently been based on the assumption of an unchanged repo rate, above all because forecasts arrived at in that way make it easy to motivate changes in policy.
The trend in prices for consumer goods over the past two or three years is a result of a favourable supply shock to the Norwegian and global economies. Low inflation is being accompanied by real income growth and a rise in production. Since last summer, monetary policy in Norway has been oriented towards a gradual increase in the interest rate – in small, not too frequent steps – towards a more normal level. On the basis of current information, this interest rate path provides a reasonable balance between the objectives to be given weight by Norges Bank in its conduct of monetary policy: •  On the one hand, the objective of bringing inflation up to the target and anchoring inflation expectations suggests in isolation that interest rates should be kept at a low level until there are clear signs of higher inflation. •  On the other hand, the Norwegian economy is growing at a solid pace. Capacity utilisation is slightly above the normal level and increasing, and house prices and household debt are rising sharply. In isolation this would call for a tightening of monetary policy. Norges Bank has decided to use some time to bring inflation back to target and has chosen to gradually shift to a less expansionary stance. The assessments of economic developments ahead will determine how gradual the interest rate increase will be. Our current assessment implies an interest rate path where the interest rate is raised by about 1 percentage point this year.

Globalisation has also had an impact on the functioning of international capital markets and has created considerable global imbalances. The US trade deficit increased to over 6 per cent of GDP in 2005, while oil exporting countries and East-Asian countries are running large current account surpluses and building up high levels of international reserves. The increased savings of oil exporters as well as of some emerging countries have pushed down international interest rates. Bond yields have been low, and have stayed low even when short-term interest rates have been raised. However, in recent months bond yields have picked up somewhat. Although the world's central banks have pushed short-term interest rates in recent years to their lowest level for a century, this has not led to a significant rise in inflation. Challenges to monetary policy The Government has defined an inflation target for monetary policy in Norway. Norges Bank’s conduct of monetary policy shall be oriented towards low and stable inflation, with annual consumer price inflation of close to 2.5 per cent over time. Norges Bank operates a flexible inflation targeting regime, so that weight is given to both variability in inflation and variability in output and employment. Since summer 2003, the Norwegian economy has experienced a marked upturn. While it took some time for employment to pick up, this is occurring now. Employment is moving up and unemployment is falling rapidly. Although inflation has increased somewhat, it is still low, even 2½ years after the cyclical change.
However, as I have argued in a number of recent speeches, these business survey indicators do not support the view that firms currently have a significant margin of spare capacity – particularly in manufacturing industry.7 And there also appears to be less slack in the labour market than we saw in the aftermath of the recessions of the early 1980s and early 1990s, as I noted earlier. Changes in demand conditions clearly do affect inflationary pressures. In a climate of stronger demand, firms will expect price increases to stick more readily than in weak demand conditions when discounting will be much more prevalent. But this pressure of demand is not well captured by simple “output gap” type measures which are too crude and prone to measurement error. Indicators of the growth of demand or changes in employment may be more useful, as they remove the need to make judgements about the sustainable level of economic activity.8 But it is probably unrealistic to try and capture the pressure of demand on inflation in any one single measure, particularly in an open economy like the UK where both domestic and international factors have a bearing on the rate of increase in costs and prices.

Countries with growing current-account and budget deficits were now able to obtain finance in the emerging international capital markets. Economic policy in many Western countries, Sweden included, drifted further and further away from Keynes’s basic tenets. Inflation, which in the Bretton Woods era had averaged around 4 per cent, soon rose to twice that. When unemployment began to increase in connection with the oil crises in the 1970s it was evident that Keynesianism faced a crisis. It offered no solution to the problem of stagflation. Earlier ideas were now revived and new approaches were developed. The difficulties decision-makers face over adjusting imbalances in good time had already been highlighted by economists, above all in the United States, in the late 1960s. There is a considerable risk, for example, that a demand stimulus when activity is low will not have time to act before an upturn has occurred. Policy is therefore liable to accentuate cyclical fluctuations instead of smoothing them. Perhaps the most pungent criticism came from those who argued that in practice, firms and households act in the light of their economic policy expectations. If, for example, the government tries to stimulate demand by increasing transfer payments and thereby the budget deficit, households will simply save the additional benefits because they expect that, sooner or later, the public sector deficit will have to be financed and this entails either increased taxes or decreased transfers. There would be no increment to demand because households strive to keep consumption stable over time.