samchain/econo-pairs-v1 huggingface dataset:
Correlations between regional import volumes rose to close to unity at the height of the crisis (Chart 12). The strength and length of global supply chains caused a synchronous collapse in trade (Bems et al (2012)). The second was the Japanese earthquake and tsunami in 2011. Because Japan plays a central role in global supply chains as a producer of high-value intermediate goods, this had a cascading effect on global production. For example, as Japanese car producers ceased production, their foreign affiliates were unable to compensate because they depending on inputs from Japan (OECD (2013)). Deepening global supply chains mean a large number of countries are now potential “super-spreaders” of global trade contagion. The story is similar, if on an even more dramatic scale, when it comes to global banking. Chart 13 plots the network of cross-border bank lending flows across a wide range of countries, in 1980 and in 2007. As with trade, the wiring of the international banking network has become significantly more dense and complex (Minoiu and Reyes (2013)). 11 And as with domestic banking networks, there is a clear core-periphery pattern to the network, with a small number of nodal “super-spreader” banking sectors serving as international lenders to the periphery banks. The global financial crisis provided a telling illustration of the susceptibility of such a network to a weakening, or failure, of the core banking sector. As these core sectors came under stress, it caused a significant cascading of global interbank contagion.

Third, despite record low mortgage interest rates, the depressed housing market remains a significant impediment.1 While house prices are no longer overvalued by historical standards, restrictions on access to credit and the large number of homes in the foreclosure pipeline means that home prices remain under downward pressure. The ongoing weakness in housing makes achieving a vigorous economic recovery more difficult for several reasons:   The strong rebound in housing construction and related activities, such as furniture sales, that typically power economic recoveries following deep recessions is absent.   The decline in home prices has eroded household wealth, which then inhibits consumer spending. Since home values peaked in 2006, homeowners have lost more than half their home equity and many expect further declines.   The weakness in home prices has reduced credit availability because many households and small businesses use their homes as their primary source of collateral for loans. 1  See Board of Governors of the Federal Reserve System, 2012 White Paper, “The U.S. Housing Market: Current Conditions and Policy Considerations” and “Housing and the Economic Recovery” by William Dudley. 2  BIS central bankers’ speeches    The big drop in house prices has made it more difficult for borrowers to refinance, undercutting some of monetary policy’s ability to support demand. In a recent speech I discussed some policy interventions that could help to stabilize the housing market. I will not discuss this further as our focus today is on education.
In retrospect, it is clear that a vast amount of capital was squandered. Many businesses and a number of countries are struggling with high debt levels. Governments that ran economies on cheap credit are now paying a high price in the form of austerity measures and unemployment. In parts of Europe, unfinished infrastructure and empty buildings are not uncommon sights. Chart 3: Productivity growth in advanced economies Productivity growth has been declining in advanced economies since the beginning of the 2000s. The willingness to invest has been low since the financial crisis. To what extent this is  3  In 1814 Norway entered into a personal union with Sweden, under the Swedish king who reigned from Stockholm. 2  BIS central bankers’ speeches  related to the economic downturn remains to be seen. Better times may eventually entice investors, but it is also possible that the substantial changes in the global economy have had a more lasting effect on the willingness to invest and the growth capacity of western economies. Chart 4: Real wages in mainland Norway, US and Germany A demanding restructuring process is underway in the traditional industrialised countries. In the US and Germany, real wages have barely risen since the turn of the millennium. Income inequality has deepened. This may in part be related to the global change in the price of labour. In other countries, particularly in Europe, economic restructuring is throwing a large number of people into unemployment.

A new regulatory framework for the recovery and resolution of failing banks is underway. A plan for orderly resolution must be drawn up for all banks. Large losses must be absorbed by writing down the bank’s equity capital and debt. The bank can then recapitalise by converting existing debt to new equity capital. The bank’s creditors step in as new owners. The bank’s losses can be allocated to both owners and creditors, while core banking services continue. A market functions best when there is scope for new entrants and for the closure of lossmaking companies. The same applies to financial markets. The banking sector is characterised by large entities and complex products. Banking regulation is also complex and rich in detail. If the authorities succeed in developing a system for resolving failing banks, perhaps we can take one step back with regard to other detailed regulations. The work on reforms that has been engaged abroad must be followed up in Norway. A national bank resolution authority must be designated. It should be placed in a unit under the Ministry of Finance. This is not a natural role for a central bank. 4  See e.g. the box “Historical monetary statistics for Norway” in Norges Bank Annual Report 2007. BIS central bankers’ speeches  5  Building wealth for future generations Among Norges Bank’s key tasks is the management of Norway’s foreign exchange reserves. This responsibility has followed the Bank since its establishment in 1816, first in the form of silver and gold reserves.
Considering this historical evidence for the euro area, even if gas prices have returned to levels close to those at the start of the war in Ukraine, the upward effects of gas prices on core inflation could still be significant in the short term. However, if the significant reduction in gas prices continues, it should be expected to gradually begin to trigger reverse transmission effects. Consequently, at the current 3  The remaining 30% is the part that the mo del canno t identify as a demand o r supply co mpo nent. It is an unexplained co mpo nent that sho uld not be given an interpretatio n under the appro ach used. 4  Bo rrallo , F., L. Cuadro -Sáez and J. J. Pérez (2022). “Rising food co mmodity prices and their pass-thro ugh to euro area co nsumer prices”, Analytical Articles, Economic Bulletin 3/2022, Banco de España. 5  Ló pez, L., S. Párraga and D. Santabárbara (2022). “The pass-thro ugh of higher natural gas prices to inflation in the euro area and in Spain”, Bo x 4, “Quarterly repo rt o n the Spanish eco no my”, Economic Bulletin 3/2022, Banco de España. 3  juncture, we could well be at some sort of crossroads, where the lagged effects of the past increases in commodity prices would still be present, but diminishing, and the first effects of the most recent decreases would be emerging and on the rise.

14 It should be noted, however, that a slower pass-through  13  This result, ho wever, masks a significant degree o f hetero geneity acro ss co untries: th e share o f ho useho ld debt with interest rates that reset within a year stands at 76% in Italy and 71% in Spain, but just 9% in France and 11% in Germany. 14  In spite o f the sluggish respo nse o f the remuneratio n o f retail depo sits, the pass-thro ugh o f market rates to retail lending rates in the euro area has been similar to in the past fo r mo rtgages, whereas in the case o f lo ans to non -financial co rpo ratio ns it has been mo derately faster, acco rding to Banco de España staff analysis. 7  to deposit rates may also have dampening effects on household spending, by slowing down the increase in savers’ financial income. On the other hand, certain factors point to a potential faster monetary policy transmission compared to past episodes. First, the current hiking cycle comes after the negative shock prompted by the pandemic, which adversely impacted the financial situation of firms by increasing their debt levels. This leaves them more vulnerable to interest hikes rates and their expenditure decisions may be more sensitive to monetary policy changes. Second, there is some evidence that monetary policy tightening is now impacting firms’ financing conditions more forcibly than in the past.
Over this period, Malta’s performance has been quite distinct, outperforming the non-stressed countries, while having a declining trend since 2013. This year, at 5.4%, it is the second lowest in the euro area, after Germany. Chart 2: Unemployment rates by groups of countries  Chart 3 shows the employment performance. Since 2008 employment in Malta increased by around 18%, compared with a rise of just under 3% in the non-stressed economies and a contraction in employment in the stressed ones. In particular, the private sector employment growth rate averaged above 3% per year over the past three years. 2  BIS central bankers’ speeches  Chart 3: Employment growth by groups of countries  Of significant importance is the strong potential output growth, which has been supported by the robust dynamics in the Maltese labour market. In its projections, the European Commission had foreseen potential output growth in 2015 in excess of 3.5%, compared with around 1% in the euro area as a whole, as shown in Chart 4. In fact, according to the European Commission, Malta and Germany were the only two Member States in which potential GDP in 2014 had already exceeded its pre-crisis growth rate. Chart 4 – Potential GDP  Labour market participation is a critical factor supporting potential output, particularly the steady increase in female participation. This is further reinforced by inward migration, mostly from the European Union. In fact, we estimate that in the period 2010 to 2014, migrant workers contributed to 0.6 percentage point of potential output growth.

In a recent report, the Malta Competition and Consumer Affairs Authority made a number of recommendations to address issues primarily related to price transparency, barriers to expansion and consumer mobility in view of improving competition and borrowing costs for SMEs. Bank charges on SME loans and charges for credit transfers need to be revised downwards to facilitate access to finance and also to encourage the use of electronic money, which would ultimately result in lower processing costs to banks. BIS central bankers’ speeches  7  Chart 9 – Credit growth to households and businesses  In keeping constant focus on maintaining competitiveness, the Government took a significant step by committing itself to set up the Malta Development Bank. Preparatory work on the establishment of the Bank is well advanced. The development bank will strengthen and diversify the local financial base and will contribute to economic growth by funding sectors and projects that are not catered for by commercial banks on their own. It will provide attractive wholesale financing and risk sharing facilities. It will be a powerful tool to bring to realisation more economically feasible projects. The delay in tackling non-performing loans (NPL) on the bank’s books is another factor that puts a drag on credit growth and reflects a dimension of credit risk that should be resolved. An efficient judiciary system that deals with insolvency cases in a timely and cost efficient manner facilitates credit risk management by bringing down the stock of NPLs.
If the Central Bank had stayed its hand now, despite the worsening outlook and the myriad of indicators of continuing deterioration, accusations of indifference, and even cowardice, would have been appropriate in view of the criticism to which the Bank has been subjected recently, some of it from quite unlikely sources. A few decades ago, when Iceland was engaged in disputes over its territorial fishing waters, we shot blanks first before loading the weapons on our tiny Coast Guard cruisers with real ammunition, and even then we thought it sufficient to shoot wide of the mark rather than aiming directly at the alleged offenders. The Cod Wars are bathed in a romantic glow in Icelandic history, but they were no small matter at the time, a daring game of chance by a tiny country contending with much larger neighbours. At one point it was said that Icelanders had won that unequal battle, that we couldn’t have afforded to lose it. The same applies, actually, to the fight against inflation. We can’t afford to lose it. Inflation must not take root in this economy again. We must take decisive action against it, no matter how unpleasant – or even costly – the effort may be in the short run. There is no need to go into detail about the consequences of inflation for the income and financial position of businesses and households; the repercussions are familiar enough.

To some extent, this is inevitable, and it is normal that items like intangible assets should be prominent in good times; but when the sky darkens and the clouds become heavy, the rain can start at a moment’s notice, and little may be left of those assets when the air clears. So we must take care in this as well as in other things. By law, the Central Bank of Iceland is assigned a clearly defined role. The Bank takes that role very seriously. It does not ask to be spared criticism of its work and its decisions, but it would appreciate some support in its attempt to keep inflation within tolerable limits. If we are successful in that endeavour, all Icelanders will benefit. If we all work together, we can reduce interest rates sooner and more quickly. BIS Review 131/2007  5
This is because there is normally uncertainty attached to the situation in the economy, disturbances to which the economy may be exposed and how fast an interest rate change influences price inflation. But we will not always take a gradualist approach. A rapid and pronounced change in the interest rate is appropriate if, for example, heightening turbulence in financial markets or a cost-push shock resulting from negotiations indicates that confidence in monetary policy is in jeopardy. Norges Bank analyses the inflation outlook in its Inflation Report, which is published three times a year. Further assessments are presented every sixth week in connection with the Executive Board's monetary policy meetings. It is, as mentioned, the inflation outlook two years ahead that determines the interest rate set by Norges Bank. If special circumstances prompt Norges Bank to apply a different time horizon, the Bank will provide an assessment of this. The same applies should special emphasis be placed on developments in financial markets and property markets. Today's inflation rate is partly the result of the interest rate that was set one to two years ago. Current inflation figures do not provide an adequate basis for determining the level at which interest rates should be set today. Monthly figures for the consumer price index are also influenced by random and temporary factors that have little impact on developments in inflation over time. Precipitation levels have an effect on electricity prices. Changes in indirect taxes have an immediate impact on the consumer price index.

Norges Bank therefore attaches substantial importance to what seems to have become a fairly broad consensus on a long-term anchor for fiscal policy that takes into account possible fluctuations in oil prices from one year to the next. The rule would appear to be credible as well since it is robust in relation to various scenarios for oil prices and oil production. The Government was of the view that a clearer anchor was required to reinforce monetary policy’s role in underpinning stable economic developments. This is why Norges Bank was given a new operational mandate for monetary policy. Norges Bank shall set the key rate with a view to maintaining low and stable inflation. The inflation target is set at 2½ per cent. The new mandate for monetary policy is in line with international practice. Sweden and the UK have an inflation target. These countries generally have a positive track record, but this may also be ascribable to a situation that was conducive to low inflation after the downturn in many countries in the early 1990s. In our view, there has been a reasonable degree of confidence in monetary policy over the past decade. Inflation has been low and stable. By quantifying an inflation target, the Government may nevertheless have made it easier to understand Norwegian monetary policy. With the revision of monetary policy, the Government has also, in our view, recognised low inflation as a benefit in itself.
I consider there is large space for this partnership to expand, also based on new challenges from the European agenda. As always, this event centers around the EIB’s Investment Survey, an excellent country analysis conducted by EIB experts. The conclusions of this survey represent a welcome addition to those of our central bank’s own survey on the access to finance of non-financial corporations in Romania. Our survey captures the opinions of the real sector on: (i) the most pressing problems that firms are facing in their activity; (ii) the perception on the financing cost; (iii) the perception on the implications of a possible appreciation/depreciation of the local currency; (iv) the perception on the impact of climate change. Coming back to the EIB, its Investment Report analyzes the state of investments in the EU in the pandemic, climate change and digitalization context. The EIB’s survey shows that Romanian firms have become more optimistic, with more of them expecting to increase investment rather than the other way around. It’s good to hear this, yet we are also aware that Romania has more work in several aspects. This is the case for areas like innovation activity and access to finance. However, we see that a large percentage of Romanian firms have already invested or plan to invest to tackle the impact of climate change, putting Romania ahead of the EU average. We concur with the EIB Investment Report that the COVID 19 represented a massive shock mitigated by a bold policy response.

Indeed, the pandemic’s immediate economic impact was unprecedented and the pandemic caused the steepest drop in output in Europe’s post-war history. 1/3  BIS central bankers' speeches  With respect to the National Bank of Romania’s responsibilities, since the outbreak of the COVID-19 pandemic in March 2020, we have taken a series of measures proportionally with the evolving situation. When the pandemic broke out, the NBR initiated a program containing measures aimed at supporting the economy: It lowered the policy rate, but stopped at 1.25% Kept liquidity in the system at moderate levels, but avoiding to flood money market with excessive cash and looking carefully to a relative stability of the exchange rate Acquired a moderate volume of government bonds on the secondary market to stabilize the yields. Once inflation re-emerged, the NBR started a normalization process, with an adequate sequence (spring 2021): Stopped the purchase of government bonds Tightened liquidity control Since autumn − increased policy rate and extended the interest rate corridor On the macroprudential front, we have implemented similar measures adopted at the European level in order to ensure banks preserve their ability to finance the economy in a sustainable manner. The Romanian banking system entered the COVID-19 crisis with significantly improved financial soundness indicators compared to the 2008 financial crisis. The banking sector remains well capitalized, with liquidity ratios well above prudential requirements, and with adequate resources to fight back if NPL ratios will restart growing, as expected all around the world.
The strained economic situation among a number of municipalities and county councils meant that we assessed it to be difficult for the Swedish Municipal Workers' Union to achieve any further far-reaching wage increases for its members. It was estimated that, all in all, the demand situation would have a subduing effect on wage demands and we thus did not expect to see any major contagion effects in the 2004 wage bargaining rounds from the early termination of the Municipal Workers' Union's wage agreement. We did not find reason to make any fundamental changes to these assessments at the beginning of February, when we had our most recent monetary policy meeting. Wages comprise only part of the total costs for labour among companies; on top of these come costs for negotiated and legislated employer contributions, various types of fringe benefits and shorter working hours. As it is the total wage cost that is important to inflationary pressure, it is also necessary to make an estimate of all of these factors. The assessment in the Inflation Report was that the wage costs for the economy as a whole would increase by just under 5 per cent this year and just over 4 per cent next year. It was also assumed in the forecast that productivity growth would recover after a decline in 2001 and approach the more normal, trend level.

2  BIS central bankers’ speeches  requirements by the end of 2014.4 At the same time, regulators are working on the establishment of resolution and recovery plans. When finalised, these plans should enable the regulators to secure the orderly resolution of a global bank in the event of a severe crisis and, in doing so, to make sure that systemically important functions can be maintained. As an important step towards this goal, FINMA has been authorised, since November 2012, to order a bail-in of creditors to generate the financial means necessary for restructuring a bank. Turning to cyclical risk, in June 2012, the Federal Council announced a set of measures consisting of three elements: (1) a permanent increase in risk weights for high loan-to-value mortgage loans,5 (2) a revision of the banking industry’s self-regulation guidelines for mortgage lending,6 and (3) the legal basis for the activation of a countercyclical capital buffer (CCB), as proposed in the Basel III framework. This instrument allows for a temporary increase in capital requirements when imbalances appear to be building up in the credit markets. It thus aims to increase the resilience of the banking system, and helps to lean against excessive credit growth. In February 2013, following a proposal by the SNB, the Federal Council activated the CCB, requiring banks to hold additional capital amounting to 1% of risk-weighted residential mortgage loan positions. Banks have been obliged to comply with this rule since 30 September 2013.