samchain/econo-pairs-v1 huggingface dataset:
Birgir Isleifur Gunnarsson: Review of economic and financial development in Iceland in 2003 Address by Mr Birgir Isleifur Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, at the Bank's annual meeting, Reykjavík, 23 March 2004. *  *  *  On behalf of the Board of Governors of the Central Bank of Iceland I welcome you all to the Bank’s 43rd annual meeting. The Bank’s financial statements for the year 2003 have been ratified today by the Prime Minister. The Bank’s annual report has also been published. It includes a survey of the Bank’s activities and performance, along with a detailed report on the Bank’s monetary policy and actions, the financial system, financial stability and the financial markets, and the main features of economic developments in the course of last year. Price developments Three years have now passed since Iceland’s monetary policy framework was changed and a formal inflation target was adopted with a joint declaration by the Government and the Central Bank. Under this framework, the target of monetary policy is price stability. The Central Bank is obliged to aim at an average rate of inflation, measured as the annual 12-month increase in the CPI, of as close to 2½% as possible. Since monetary policy aims at maintaining price stability, it will not be applied to achieve other economic targets such as a balanced current account or a high level of employment, except insofar as these are compatible with the Bank’s inflation target. Prices were stable in 2003.

In part the policy stance of the European Central Bank has to the extent possible been guided by efforts to drive growth with low interest rates, while the Central Bank of Iceland’s objective has by and large been to contain economic overheating. The current account deficit and the labour market Iceland’s external balance has been volatile in recent years. A current account deficit equivalent to 10% of GDP in 2000 was virtually eliminated within two years, but widened sharply again in 2003. After reasonable balance in the first quarter and a sizeable merchandise account surplus, the deficit in the second and third quarters was the largest since the beginning of 2001. For the year as a whole, the current account deficit was equivalent to 5½% of GDP. A recession in exports was a strong contributing factor, along with rising imports driven by private consumption, but much of the widening current account deficit may be ascribed to imports of investment goods for a hydropower project. In this respect the deficit is benign in origin, although the pace of increase so early on in the upswing is a cause of some concern. As is commonly the case at the onset of a growth episode, the increase in demand for labour was fairly slow during the year. The unemployment rate came down more slowly than had widely been expected given the surge in vacancies registered with employment agencies. Seasonally adjusted unemployment began to decline slowly from the autumn onwards.
In the Inflation Report 4/2000, we presented our view of how interest rates affect price inflation in Norway. In principle, the more discretion and flexibility the monetary policy objective implies, the more complex and subtle communication must be. Monetary policy requires the continuous exercise of discretion. The exercise of this discretion is limited, however, by Norges Bank's mandate and our interpretation of it. Furthermore, we have contributed to restricting the exercise of discretion by being transparent in our response pattern, our analyses of economic developments and our assessment of the results of the monetary policy that has been conducted. Central bank communication varies from one country to another. The various solutions reflect different objectives and institutional parameters as well as different histories and cultures. Therefore, in my view, we should be cautious about recommending a specific country’s choices and solutions as a norm. The Reserve Bank of New Zealand is required by law to submit a Monetary Policy Statement at least twice a year, and these reports are published quarterly in the form of inflation reports. The reports include an account of an interest rate path that will contribute to keeping inflation consistent with the target. The official Cash Rate, New Zealand’s key interest rate, is reviewed once between reports, at a pre-announced time. Decisions regarding the Cash Rate are published immediately, accompanied by a commentary. The Reserve Bank Governor is responsible for achieving the target, and for making decisions.

If it appears that inflation will be lower than 2½ per cent with unchanged interest rates, the interest rate will be reduced. There is symmetry here. It is equally important to avoid an inflation rate that is too low, or deflation, as it is to avoid an inflation rate that is too high. When the annual use of petroleum revenues is managed according to a long-term action plan, a policy for which there is currently fairly general political consensus, we should normally be able to use the interest rate as a policy instrument to prevent high inflation. Normally, monetary policy should also be a fairly effective means of countering a deflationary recession. Stagflation, ie stagnating output and rising unemployment combined with rapid inflation, which characterised economic developments in many countries in the 1970s and 1980s, originates in the supply and output side of the economy or in income determination. If the Norwegian economy should ever be threatened by stagflation tendencies, monetary policy must be directed towards maintaining low and stable inflation. At the same time, structural policy and incomes policy should contribute to improving the functioning of the economy, allowing economic growth and employment to pick up. A change in interest rates is not expected to have an immediate effect on inflation. Our analyses indicate that a substantial share of the effects of an interest rate change occurs within two years. Two years is thus a reasonable time horizon for achieving the inflation target of 2½ per cent.
Toulouse School of Economics – Toulouse, 8 December 2022 The magnitude and distribution of the energy and trade shocks in the euro area and in France Speech by François Villeroy de Galhau, Governor of the Banque de France  Page 1 of 14  I am delighted to be with you today and I would like to warmly thank TSE, Jean Tirole and other professors for giving me the opportunity to make this speech. My topic will be a very important issue at the current juncture, namely the external shock related to energy prices and the deterioration of the terms of trade, which are currently hitting European economies. Today, in commodity-importing countries, the prices of imported products, especially energy products, are rising much more than the prices of exports. This is a net cost for commodity-importing countries, including France. In economic terms, the terms of trade, i.e. the ratio of export prices to import prices, are falling for those countries, thus reducing their purchasing power. In this speech I will start by describing the various ways we can assess the energy and trade shocks we are facing, and remind us of some measurement challenges they raise. The comparisons across countries and across time will also be instructive. The second key issue I will discuss is how this shock has so far affected the economic agents in France, and how the burden of this shock should be shared across categories of agents. I.

Beyond the comparison of this current terms-of-trade shock across countries, it is also instructive to compare this shock for a country like France with the period to which the present situation is often compared: the 1970s oil crisis. Page 5 of 14  The terms of trade shock in France this year is expected to be the second largest since 1974, the first oil price shock. In 2022, for the whole year, the shock would amount to -1.4 GDP percentage point versus -2.8 GDP percentage points in 1974 during the first oil shock. Our estimate for 2022 is in line with other estimates published by Insee and the Ministry of Finance of around -1.5 GDP percentage point. The shock related to import prices is of similar magnitude in 2022 and 1974 but there are some differences in the composition of the shocks. In 2022 it is not only the price of energy that increases but also the prices of many other imported goods (non-energy commodities, intermediate goods etc.). At the same time export prices rose more in 2022, reflecting the more widespread diffusion of price increases to globally traded goods. In addition, the price of services, especially transport services, also partially offsets the negative shock to goods prices resulting from the surge in energy prices. There are many uncertainties regarding 2023. If the levelling off of world commodity prices is confirmed and the global economic slowdown also weighs on imports, the terms of trade shock will diminish in 2023.
When the stakes are high, the incentives of the involved nations to keep their cards close to their chests until the last minute will also be strong, and the decisive actions that would be desperately needed in a crisis situation may be taken too late or not be taken all. In the worst case, this may result in a failure to prevent a crisis from developing further with the effect of greater overall social costs to share. On top of this “prisoners’ dilemma”, things can get even more complicated by the fact that banks will shop around for the most favourable support among the countries involved. Let me be a little bit more specific. Take emergency liquidity assistance, for example. A central bank could decide to act as a lender of last resort and provide emergency support to an illiquid but basically solvent institution. The problem is that, in the heat of a crisis, it may be almost impossible to be certain as to whether the bank has merely liquidity problems or has serious solvency problems as well. Information will almost certainly be incomplete. Therefore, providing emergency liquidity assistance could in principle result in losses to the central bank, so the ultimate cost of the assistance is therefore uncertain at the outset. (If the bank could pay back with certainty, there would typically not be any need for emergency liquidity assistance and the market would be able to handle the liquidity  BIS Review 39/2006  5  shortage.)

The launch of the ABF Malaysian Bond Index Fund today marks another important milestone resulting from EMEAP Central Bank cooperation in the region. It represents the successful implementation of the Asian Bond Fund project to accelerate the development of the domestic bond market and to promote greater integration among the regional bond markets. The listing of the ABF Malaysian Bond Index Fund is thus another major step forward in the development of the Malaysian bond market, and to enhance further its potential to contribute to sustained and balanced growth of our economy. The bond Exchange Traded Fund is an investment instrument with a low entry cost. It is a highly efficient, transparent and convenient investment tool designed to appeal not only to institutional but also retail investors. With an affordable standard lot size, the bond Exchange Trade Fund provides an avenue for retail investors to have access to the bond market. It thus offers investors an additional investment alternative as well as an opportunity to diversify their investment into more asset classes. The ABF Malaysian Bond Index Fund comprises investments in Government and Quasi Government securities and tracks an index, which by design is replicable and transparent. The listing of the ABF Malaysian Bond Index Fund today will not only add to the diversity of listings on Bursa Malaysia but would also pave the way for the increased introduction of other more innovative products in the future.
The model exercises I have presented so far build on the assumption that inflation expectations are anchored. As long as households and firms assume that inflation will return to target over time, neither small nor large cost shocks will have a lasting effect on inflation. The central bank can then put relatively large weight on the aim of high and stable output and employment. Chart: Greater attention to inflation? In Norway inflation has been low and stable for a long period, until recently. Inflation expectations, as we measure them, have been close to the inflation target. Short-term fluctuations in inflation have had little impact on inflation expectations ahead. Since winter, inflation expectations have increased, particularly one-year-ahead expectations. Inflation has also attracted substantial media attention. In 2003, a theory called rational inattention was advanced by the Nobel Laureate Christopher A. Sims. [13] In periods of low and stable inflation, it may be rational not to pay much attention to inflation and it would be reasonable to assume that inflation remains relatively constant. Once inflation reaches a high level, agents start paying attention to it and find it worthwhile to spend time and resources on factoring future inflation into their economic decisions. If economic agents expect high inflation to persist, the high inflation numbers may become a source of persistently high inflation. Both inflation and inflation expectations become entrenched at a higher level, and it becomes more difficult to bring inflation down. Chart: From one expectations regime to another This can also be illustrated in a model exercise.

These surpluses have declined in the past few years. Oil and gas production passed its peak more than a decade ago. We may find once again that these resources have been underestimated. But the oil price collapse and developments in the Norwegian economy in the past few years have reminded us of an inescapable fact; we must drive forward a larger non-oil tradable sector. We need more legs to stand on. The needed structural adjustments in the Norwegian economy will have to be dealt with against the backdrop of more global challenges. Demographic changes and sagging productivity growth may point towards persistently low growth in advanced economies. Protectionist tendencies and reduced trade in goods and services could put an additional drag on growth. We must also make changes to consumption and production methods in order to reduce greenhouse gas emissions. This evening I will take a closer look at these challenges. Is low growth here to stay in advanced economies? In the long term, there are two factors that determine how quickly an economy can grow: the 2/9  BIS central bankers' speeches  supply of labour and labour productivity. Chart: Working age population The decline in the working age population is weighing on the growth outlook for many countries. The large post-war cohorts are leaving the labour force, and the consequences of a long period of low fertility rates are becoming increasingly clear. At the same time, the proportion of the population who are employed remains low in many countries.
In just one-and-a-half decades, those ratios have converged, reflecting the cumulation of efforts made over preceding decades: The proportion with less than secondary education has dipped below 30%; While the proportion of the university-educated has more than doubled to nearly 30%. The effects of this transformation in human capital will continue to be felt in the productive capacity of the workforce. With higher levels of education, the ability of the workforce to take on more complex tasks and to leverage on technology is substantially stronger. There is more to come. The share of the university-educated may not continue to as rise sharply but there is still plenty of scope to increase the share of those with secondary, post-secondary and diploma & professional qualifications. • They will be better placed to transform the nature of many jobs, raising standards and quality, thus enabling productivity and wages in these occupations to rise. Second, there is scope to improve the quality of the foreign workforce. We should increasingly be concerned about the skills of the foreign workers that we take in, rather than just the numbers. In fact, more skilled foreign workers will mean that we will need less of them. The trend of improving quality in our foreign workforce has already begun. The proportion of work permit holders has declined by about 10 percentage points over last 10 years, while the proportion of S Pass and employment pass holders has 13 / 17  BIS central bankers' speeches  increased by around 10 percentage points.

At the moment, although the European and US government bond markets are of comparable size, the non-government bond market in Europe is ‘only’ a third to half the size of that in the US; and much of that is bank issued debt. I would expect the euro corporate bond market to develop significantly in the medium term. And with it, I would expect to see other product markets develop, as they have elsewhere (in the UK, but especially in the US) – for instance markets for asset backed securities and commercial paper. As part of this I think we will see a trend to greater issuance at the lower credit end of the market (or ‘high yield’, as it is politely named). In the euro area around 70% or corporate bond issuance is by issuers  3  BIS Review 43/1999  rated Aa2 and above. In the US, it is around 30%. I would expect that gap to close a bit, and I think there are already signs of life in the European high yield market. While I am on the subject of European bond markets, I would like to make just a few remarks about the proposed EU withholding tax. The stated objectives of the scheme – reducing tax evasion and reducing structural unemployment – are clearly desirable ones. But in thinking about any kind of withholding tax a judgement has to be made about the trade off between the efficiency of tax collection and the efficiency of capital markets.
7  P. Aghion, P. Askenazy, N. Berman, G. Cette and L. Eymard, 2012. “Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France,” Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001–1024, October. 8  P. Aghion, D. Hémous and E. Kharroubi, 2014. “Cyclical fiscal policy, credit constraints, and industry growth,” Journal of Monetary Economics, Elsevier, vol. 62(C), pages 41–58. 9  A. Bergeaud and G. Cette and R. Lecat, 2016. “The role of production factor quality and technology diffusion in 20th century productivity growth,” Working papers 588, Banque de France. 10  C. Reinhart and K.S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review, 100(2): 573–78; Lane, Philip R. 2012. “The European Sovereign Debt Crisis.” Journal of Economic Perspectives, 26(3): 49–68. BIS central bankers’ speeches  3  impediments to the flow of resources, in particular in the labour market and in the way credit was allocated between sectors, hence revealing that a malfunctioning of the financial sector can reinforce structural weaknesses. 11 In some cases both were present at the same time. Of the uttermost importance were the structural changes targeting an improvement in the monitoring and the resilience of our financial system. Arguably the financial crisis partly resulted from excess risk taking and overinvestment in low productivity sectors. 12 The Basel 3 framework worldwide and the Single Supervisory Mechanism in the euro-zone provide new supervisory and prudential tools to mitigate these risks in the future.

Looking at the last two decades, at one end there is the original Financial Services and Markets Act2 (FSMA) 2000 model, which gives most discretion to operationally independent regulators. Only statutory objectives and the general framework for rule-making (including obligations to “have regard” to particular matters) are set out in legislation, and regulators have wide powers to make rules which comprise the regulatory regime. At the other end of the spectrum is the way in which rules are made in the EU, which we have imported through the “on-shoring” process as part of Brexit. Under this approach a significant amount of technical detail, including calibrations, are set out in legislation. In between these two, there are various other options, including in recent UK experience the approaches adopted for the Senior Managers and Certification Regime (SMCR) and ring-fencing. Both of these contain significantly less detail in legislation (rather than regulators’ rules) as compared to the EU model:   SMCR. Certain core aspects of the regime (e.g. the framework for regulatory approval processes and the fitness and propriety test, relevant offences, and introducing the concept of conduct rules and statements of responsibilities) are set out in legislation. But regulators were given considerable discretion in filling in the detail of the framework – including what functions required approval, the content of the conduct rules, and the detailed systems and controls requirements that apply to firms.   Ring-fencing.
That build-up took place over a very short period in 2014-2016, when foreign currency inflows were at a peak. In my speech at last year’s Annual Meeting, I outlined the benefits of maintaining the reserves — benefits enjoyed by many — and I also discussed the costs, which fall mainly on the Central Bank. These costs derive from a negative interest rate differential, as the reserves are currently invested abroad at low interest rates, while the rates on the Bank’s króna-denominated debt are much higher. Extrapolations carried out last year indicated that because of this, the Bank’s operating results would be negative by roughly 18 b.kr. per year. New calculations indicate that this loss has shrunk to 15 b.kr. per year, mainly because the international reserves are smaller and the interest rate spread is narrower. Central banks do not become insolvent in the conventional sense, even if they have negative equity; indeed, many respected central banks have operated under such conditions for longer or shorter periods. This is because the purchasing power of the reserves is intact as regards the purpose they serve, and central banks themselves issue the currency they use to pay domestic costs. Even so, it could be detrimental if the Central Bank of Iceland has significantly negative equity, as this could undermine its independence and its ability to achieve the price stability objective.

Continuing financial disintermediation also involves increased competition for credit institutions. It is well known that, if trade credit is excluded, the bulk of borrowing by Spanish non-financial corporations has traditionally been in the form of bank loans. This funding structure is similar to that observed in other European countries, such as Germany or Italy, but contrasts with the greater weight of financial markets in other economies such as the United States and the United Kingdom. Following the outbreak of the most recent crisis, a gradual increase in the weight of business funding raised on financial markets through the issuance of fixed-income securities has been observed in Spain and in other developed countries. This phenomenon especially affects large corporations. Among the factors potentially contributing to this development are the regulatory changes in the financial arena, imposing stricter requirements on banking activity, as mentioned earlier, and the corporate sector purchase programmes by central banks, which has reduced the cost of issuing these assets. Looking ahead, this trend towards the expansion of capital markets might continue if progress can made on the European project to create a capital markets union. Also, a potential increase in long-term savings linked to the ageing of our society could also contribute in the same direction. Although a greater diversification of financing sources could potentially be positive for nonfinancial corporations, making them less vulnerable to adverse shocks affecting a specific financing channel, for credit institutions it could entail a reduction in business volume and income.