samchain/econo-pairs-v1 huggingface dataset:
Perhaps this will become the new paradigm approach to monetary and financial stability in Asia, but elsewhere I have chosen to call this a “band aid” approach. Coming from Hong Kong, the freest economy in the world, where by law we are not allowed to impose any foreign exchange control policies and our currency must be freely convertible, I am reluctant to accept ad hoc limitations to financial openness. But I can quite understand the plight of other emerging markets in Asia. When the undesirable elements of international finance assume a predatory character and look us fiercely in the eye there is simply a need for self-defence, and temporary or discreet changes in the rules of the game are at times effective. Let me turn to the sixth characteristic of Asian finance that I wish to draw your attention to, and this concerns exchange rate policy. You are, no doubt, aware of the fact that the exchange rates of currencies in Asia have become more flexible, as an outcome of the financial crisis of 1997-98. Whether or not this is a desirable outcome remains to be seen, although my view probably represents the exception rather than the mainstream opinion. I say this not for the purpose of justifying the maintenance of a fixed exchange rate for the Hong Kong dollar. I shouldn’t have to. The fixed exchange rate has served Hong Kong very well and, with currency board arrangements and a very flexible economy, I do not see any insurmountable difficulty in sustaining it.

For example, we hear often that the Hong Kong financial markets provide a perfect hedge, or more modestly, a proxy hedge, for risks in the Mainland of China or the region. There is an element of truth in this. After all, this is one of the roles of an international financial centre. But it does mean that, in Asia, the dynamics of financial contagion can be quite complex. For example, financial crises do not necessarily erupt and manifest themselves at source - somebody sneezes and others get pneumonia. So, it is only prudent that Asian monetary co-operation should be on the agenda of discussions on Asian finance, and I have been urging for greater co-operation for some time. I am therefore glad that there has been increasing attention given to the subject in recent years. But, in terms of actual co-operative initiatives, progress has been slow and the scope rather narrow. To be fair, there is consensus on the need for diversification of financial intermediation channels, for enhancing efficiency and financial stability, and this consensus has been manifested in co-operative efforts to develop the bond markets in Asia. There are three clusters of initiatives:  2  "What is driving Asian exports? ", HKMA, August 2003.
It is not possible to see the road ahead clearly and nor is it possible to know exactly what will happen if one puts one’s foot down on the accelerator pedal – only that the effect will come after a fairly long period of time. Why haven’t we cut the interest rate? Let me now return to the present situation and the question of whether it is reasonable to lower the interest rate in order to rapidly bring the present low inflation rate back in line with the target. The Executive Board’s reasoning at its most recent monetary policy meetings has been roughly as follows. Firstly, as I mentioned at the beginning, the Swedish economy has developed at an increasingly strong rate in recent years, and our analyses during the winter and spring have come to an assessment that this will continue. We have thus seen a rise in inflationary pressure at the end of the forecast horizon. If our assessment during this period had been that demand was declining, I believe the situation would have been different. Secondly, the present low inflation rate can be largely explained by what is known as positive supply shocks, such as increased competition, lower import prices and surprisingly rapid productivity growth. These factors benefit economic developments. To attempt to push up prices for domestic goods and services to counteract a decline in prices for imported goods is not necessarily a wise choice. Thirdly, monetary policy’s impact comes through influencing demand, primarily corporate investment and household consumption.

The analysis in the June Inflation Report showed that a reduction in the sight deposit rate towards 3 per cent, combined with some depreciation of the krone, 2 could bring inflation up towards the target two years ahead. More moderate wage settlements in the 3 future would provide a basis for even further monetary policy easing and a weaker krone. Without considerable monetary policy easing, inflation might have remained too low for an extensive period. The short-term nominal interest rate in Norway has now reached a historically very low level. Interest rates have not been lower since the first nine to ten years following the Second World War. The real interest rate is also low, although by no means as low as it was when inflation plagued Norwegian savers in the 1970s and 1980s. The low interest rate must be viewed against the risk of persistently low inflation both in Norway and in other countries. So far, indicators of inflation expectations do not point to any substantial deviation from the inflation target of 2½ per cent. However, if inflation should remain too low for an extensive period, there is a risk that expectations of continued very low inflation will be generated. It may then prove difficult to fuel economic activity by stimulating demand. A marked easing of monetary policy has therefore been appropriate. The inflation target is symmetrical. It is equally important to avoid an inflation rate that is too low as it is to avoid an inflation rate that is too high.
A smooth functioning of the banking sector is therefore clearly an essential element in the resolution of Europe’s problems. As a central banker and supervisor, I see three major tools which can help to ensure appropriate financing of the economy and financial stability – both of which are essential financial conditions for sustainable growth. 1. Financial regulation and supervision must be tailored to the two objectives of strengthening the financial sector while ensuring an appropriate financing of the economy. Of course, after the 2008 financial crisis, the most urgent priority was to re-establish financial stability and bolster resilience to financial shocks. But in the implementation process of the new Basel 3 rules, we need to pay the utmost attention to their potential consequences for the financing of the economy, especially in view of the much shorter agenda. In particular, the new liquidity rules need to be adjusted. In addition, much more progress is now needed in the area of “shadow banking”. 2. Since the beginning of the crisis, the Eurosystem has constantly provided all possible support within the scope of its mandate to help the banking system overcome its difficulties. For instance, the idea of the two LTROs was to remove funding pressures in order to allow a smoother adaptation to the new rules and difficult environment. Simultaneously, this aimed to prevent a major credit crunch that would compromise both the financing of the economy and the maintenance of price stability in the area.

We are witnessing the emergence of a fully-fledged and constantly evolving digital ecosystem. Faced with the competitive threat from innovative newcomers, traditional players can respond using different strategies: establishing partnerships, acquiring fintechs or competing for new markets and activities. 2. The second element is stability. Although banking and financial innovations can stimulate growth in the financial system and foster economic expansion, we know  BIS central bankers’ speeches  1  only too well that they can also be a source of instability, as evidenced by the subprime crisis. Digital innovations actually expose the financial system to new forms of risk. First of all, the digitalisation of financial services presents a new issue for central banks as they perform their task of ensuring safe financial transactions (payment, delivery and settlement). In particular, the significant growth of decentralised trading systems, driven for example by blockchain technology, could change the conditions in which central banks perform their duties. The transition to cyberspace has also left finance exposed to the increased threat of cybercrime. Lastly, the rise of digital innovation could also provide an opportunity for criminals to develop new methods of laundering money and financing terrorism. In this context, the new players in this digital era must also be fully subject to all anti-money laundering and counter-terrorist financing regulations. 3. The third element needed in order to reconcile innovation and stability and construct our “possible trinity” for digital finance is regulation.
18  History suggests each of these capitals may have played an important supporting role in the story of growth. Ideas alone, without the support of one or more of these broader capitals, have historically run aground. For example, in the UK many of the foundations for growth after the Industrial Revolution were laid in the centuries preceding it. It was on this platform of “capitals”, plural, that ideas and innovation then built. Take human capital. The most dramatic improvements in educational standards in the UK occurred prior to 1750 (Chart 3). So too did the largest improvements in measures of social, infrastructural and institutional capital. 19  Ideas needed these foundations to flourish. A steam engine is not much use without the skills to  build it, the tracks to run it on, the institutions to oversee it, the trust of the public to accept it. The causes of th  the growth inflexion in 18 century England were as much sociological as technological. Another lens through which to view this alternative growth story has recently been provided by economic historians, Steve Broadberry and John Wallis. 20  Indeed it was probably this lens on the world, above all  others, that led me to change my own story about growth. Broadberry and Wallis do two things. First, they construct some new estimates of growth going back to 1300. Rather than relying on period averages, they use higher-frequency measures of growth. This changes the growth picture significantly.

Trade unions helped workers by campaigning to protect their rights, improve their conditions and boost their bargaining power in the workplace. They also provided direct financial support to unemployed workers, through an early form of unemployment insurance, to smooth the income consequences for workers of job loss. The National Insurance Act (1911) and the Beveridge Report (1942) subsequently made this a responsibility of the state and put it on a comprehensive footing. th  This was part of a wider-ranging shift in the role played by the state in society from the 17 century onwards. th  State spending as a proportion of national income rose from around 1% in the 16 century to around 12% in th  th  th 39  the 18 , 14% in the 19 and 33% in the 20 . It financed social infrastructure of various kinds supporting  those facing greatest hardship. This ranged from social housing to healthcare to income support. Its effect was to cap the downside, recessionary risk to individuals, economies and societies. 40  Another form of institutional support came from the creation of state-owned and/or central banks. The Bank th  of England was set up at the end of the 17 century to manage the government’s debt and safeguard the nation’s currency and finances. Over the course of subsequent centuries, this role has expanded.
A banking union is necessary for the smooth functioning of a monetary union for the following three reasons: •  It breaks the link between banks and sovereigns by bringing banking supervision and crisis management to the federal level. With the banking union, banks will be considered as euro area institutions over and above their nationality; it will ensure that credit conditions in the euro area will not depend on where you are but on who you are, which is what should be expected of an efficient financial market. •  It allows re-integration of the European banking system. A supra-national supervisor is in fact better placed to assess the risks of cross-border activities and therefore to protect and encourage such activities; it is not subject to national biases that can lead to the temptation of economic introversion. It is therefore more credible and strengthens stability and confidence in the area;  •  Moreover, it restores the full efficacy of monetary policy. If our monetary policy impulses are not transmitted uniformly to all of the area’s countries because of the bank-sovereign link, it undermines the very foundation of Europe’s monetary union; remember that three quarters of the financing of the euro area’s economy consists of bank loans. By breaking this link, a banking union would restore the federal dimension of monetary policy. Today the first pillar of the banking union is being constructed: the Single Supervisory Mechanism.

In this field too, the euro area has made considerable progress over recent years, especially in the countries that had a particularly large competitiveness gap vis-à-vis the rest of the zone and which, as a result, fell deeper into the crisis than their neighbours: •  We have seen a significant improvement in cost competitiveness as measured by unit labour costs (ULC). Between 2008 and 2012, in the three programme countries (Greece, Portugal and Ireland) cumulated ULC growth stood about 12 percentage points below the euro area average. •  The current account balances clearly show a strong correction. In the three programme countries, the current account balances as a percentage of GDP improved by more than 9 percentage points between 2008 and 2012. In Spain, the current account deficit improved by more than 7 percentage points over the same period. Most of the adjustment has been driven by a contraction in domestic demand. However, in Ireland, Spain and Portugal export performance has been very strong compared with the pre-crisis period. 2  BIS central bankers’ speeches  In total, the euro area generated a trade surplus of more than 1% of its GDP in 2012 compared with around zero in previous years. We expect this surplus to continue growing in the coming years. The speed and depth of the reforms underway in euro area economies is unprecedented.
However, this time there is also reason to ask whether we are sufficiently prepared. Is our economy sufficiently robust? The fall in oil prices was triggered by an international financial crisis and slower growth in the world economy. The Norwegian economy is highly exposed to international fluctuations. Is our own financial system and business sector strong enough to cope with this situation? How should monetary and fiscal policy be formulated in such an exposed and oil-dependent economy? These are the issues I would like to address this evening. A turbulent world Even before oil prices started to fall, the warning signals were flashing for everyone to see. The Norwegian economy was overheating in an environment of global economic distress. The signals from Asia were clear. 1  BIS Review 20/1999  The problems first appeared in Thailand a little more than 18 months ago, but spread quickly to Malaysia, the Philippines, Indonesia and South Korea. In most of these countries, a sharp upturn had been stimulated by low interest rates and financed through a considerable accumulation of debt in the business sector. Borrowers became increasingly nervous and withdrew capital. Capital inflows from industrial countries were suddenly reversed to massive capital outflows. Equity and property prices fell sharply and currencies came under pressure. The contagion effect led to a sharp downturn in production and employment. Large population groups that had recently experienced a pronounced increase in living standards slid back into poverty.

In this case, the additional revenues will not influence the economy, but be invested abroad via the Government Petroleum Fund. On the other hand, if the additional revenues are absorbed in the domestic economy through increased government budget expenditure, total domestic demand is influenced. Increased expenditure requires an increase in the public sector’s use of resources, primarily labour. In this case, 1% of GDP is substantial. If such an increase in oil revenues is used domestically, it corresponds, for example, to around half of average annual growth in the economy. If the private sector of the economy also expands while the economy is nearing capacity limits, such a policy will heighten the pressures on resources in the economy, which in turn fuels inflationary pressures. Unfortunately there was a clear tendency of such a policy in 1996, 1997 and 1998. The non-oil government budget deficit was indeed reduced, but the division of responsibility in economic policy required a more active tightening. Rather than conducting a tight policy and countering the higher  9  BIS Review 20/1999  growth in the business sector, the increase in budget expenditure entailed that the public sector also contributed to fuelling pressures in the labour market. As a result, a small change in oil prices had the effect it was not intended to have: it was accompanied by an increase in public sector demand. Foreign exchange market participants observed that economic policy was not oriented towards containing pressures in the labour market.
In total, the euro area generated a trade surplus of more than 1% of its GDP in 2012 compared with around zero in previous years. We expect this surplus to continue growing in the coming years. The speed and depth of the reforms underway in euro area economies is unprecedented. They have undertaken reforms in the areas most important for competitiveness, growth and the sustainability of public finances such as labour markets, products markets, social security, pension systems, etc. These reforms are a prerequisite for dynamic and sustainable growth in the future and they must be vigorously pursued. In addition to this very clear determination at the different national levels to reduce deficits and introduce the necessary reforms, Europe has equipped itself with a new disciplinary framework. The Heads of State signed a new fiscal compact over a year ago that fixes very strict rules and gives very extensive powers to the European Commission to assess the  2  BIS central bankers’ speeches  compliance of Member States. This new compact goes hand in hand with the introduction of rules for monitoring macroeconomic imbalances. It is important to understand what these institutional advances represent: in effect, they represent a new Treaty creating very strong commitments for the States via rules that are far better calibrated and far more binding than those in place when European monetary union began. 3. Monetary Union is to be enhanced with a banking union.

Mojmír Hampl: States as debtors Speech by Mr Mojmír Hampl, Vice Governor of the Czech National Bank, to the Alpbach Financial Market Symposium, Alpbach, Austria, 2 September 2011. *  *  *  I would like to thank the organizers for inviting me to this wonderful and amazing place. And that is not a platitude; I really mean it. It is my first time here in Alpbach, and I can only hope that it is not the last after I finish my presentation. Concerning the sovereign debt crisis, we are describing it as something absolutely fatal. But from a bird’s eye view – as was said by several speakers yesterday – sovereign debt problems and overindebtedness of nation states are nothing new. Europe as a continent has a rich experience with such problems. The Czechs share a long part of their history with Austria, so many might remember from their textbooks the sovereign instabilities and crises of the 19th and 20th centuries, for instance the well-known crash of state finances in 1811, in the middle of the wars against Napoleon. That crash was followed by a drastic monetary reform, default of the Austrian empire and a search for a better way. This time is different, however, at least in the following respects: 1. We forgot that this can happen, that sovereigns can become perfectly insolvent just like any other debtor, and states behaved accordingly. 2.
Turning to fiscal policy, the baseline scenario assumes that the trajectory of public spending is consistent with the fiscal rule and with the Administration’s announcements that it will  BIS central bankers’ speeches  3  follow a path of fiscal consolidation, which has resulted in an adjustment of expenditures planned for 2016. This is consistent with a lower trend price for copper than was assumed in the formulation of this year’s budget. Risk balance One of the main external risks comes from the international financial markets. New volatility episodes may be repeated like the ones we saw in the early months of this year, because many of the underlying elements are still present. In particular, doubts around the situation in China, and doubts concerning the Fed’s decision on the policy rate. This, because of both its difference with what can be inferred from market prices and the divergences with other developed countries’ monetary policies. Nor can we rule out that the increased appetite for riskier assets observed in the past few weeks could persist. Any outcome will have effects, among others, on external financial conditions and emerging economies’ currencies and, it will thereby have an impact on local output and inflation. Another risk scenario has to do with the outlook for world activity. On the downside, there are doubts about the growth capacity of China, which couples with doubts surrounding the solidity of the US recovery.

Just as a reference: in March 2014, 90 percent of the analysts consulted under our Economic Expectations Survey thought that GDP would grow by 4 percent or more in 2016. Two years on, 90 percent are betting on less than 2.1 percent. What caused this change in the forecast? To begin with, the world economy is undergoing an important process of reconfiguration, which entails deep changes that have proven not only more intense, but also of a much more persistent nature than expected. Among them, it is worth singling out the evolution of the Chinese economy and its major effects on the commodity markets. The effects of this phenomenon have reflected strongly in a sharp reduction in mining investment, of nearly three points of GDP in the past few years, putting a brake in our economy, especially considering that in previous years this sector was an important driver of growth. The situation in China has not only affected the prices of commodities. In addition, the uncertainty surrounding the changes in the Chinese economy has driven up global risks. After all, never had an emerging economy played such an important role in the world economy. Secondly, the global financial crisis of 2008 hit the developed economies harder than we originally thought. The wounds it left have constrained their economic recovery and pushed them to experiment with ultra-expansionary monetary policies. This, coupled with the fragilities of many emerging economies, has led this group of countries to face tighter financial conditions than they did some quarters ago.